* Chance of U.S. government shutdown hangs over markets
* Dollar slides broadly, most major world stock indexes
* Oil falls in choppy trade
By Herbert Lash
NEW YORK, Sept 27 Global equity markets fell and
the dollar hit a 7-1/2-month low against the safe-haven Swiss
franc on Friday as the prospect of a shutdown of U.S. government
operations next week and a possible debt default several weeks
later unsettled investors.
A lack of clarity over when the Federal Reserve will scale
back its stimulus program also weighed on the dollar. The Fed
must be patient in deciding when to trim its bond purchases, two
of its most dovish officials said, a week after the U.S. central
bank unexpectedly stood pat instead of tapering.
President Barack Obama said he would not agree to delaying
or defunding the new healthcare reform law, that the Senate
acted responsibly earlier in the day to keep the government open
and that healthcare exchanges would open on Tuesday.
Obama also said that failure to raise the government's debt
limit would be far more dangerous than a shutdown, and would
have economic impacts domestically and around the world.
Washington braced for a partial shutdown on Oct. 1 as
Congress tackled an emergency spending bill that Republicans
want to use to achieve Tea Party-backed goals, such as defunding
the Affordable Care Act.
As expected, the Senate passed a bill to fund government
operations from Oct. 1 to Nov. 15 and sent it to the House of
Representatives, where Republicans are considering attaching
items that could block the emergency funding.
"As this deadline approaches, investors are stepping up
their sale of dollars on the growing concern that a government
shutdown will undermine the quality of U.S. assets and lead to a
retrenchment in U.S. growth," said Kathy Lien, managing director
at BK Asset Management in New York.
Congress also faces the hard task of raising the limit on
federal borrowing authority, which Republicans also are
targeting for controversial add-ons.
Without a debt limit increase by Oct. 17, Treasury Secretary
Jack Lew has warned, the United States would have a difficult
time paying creditors and operating the government.
The cost of insuring against a U.S. default
rose to its highest since May in the thinly traded market for
credit default swaps.
Investors would have to pay about $32,000 to insure $10
million worth of Treasuries against default in five years, up
from $22,000 a week ago.
Andre Bakhos, managing director at Janlyn Capital LLC in
Bernardsville, New Jersey, said that as the weekend approaches,
tensions were mounting over the haggling in Washington.
"Until there's greater visibility, the market is going to be
choppy and erratic," Bakhos said.
The dollar fell against both the yen and the euro, as well
as the safe-haven Swiss franc. The dollar index was down
0.34 percent to 80.253 against a basket of other major
Most major stock indexes fell, with the exception of
Brazil's Bovespa index, which edged higher. The
benchmark S&P 500 and Dow posted their first weekly drop in
MSCI's all-country world equity index fell
0.15 percent, and the FTSE Eurofirst 300 index of
leading European shares fell 0.23 percent to close at 1,254.59.
The Dow Jones industrial average closed down 70.06
points, or 0.46 percent, at 15,258.24. The Standard & Poor's 500
Index fell 6.92 points, or 0.41 percent, at 1,691.75. The
Nasdaq Composite Index slid 5.83 points, or 0.15
percent, at 3,781.59.
Sterling rose to $1.6137 against the dollar after
Bank of England Governor Mark Carney was quoted as saying he saw
no need for more bond-buying by the central bank given signs of
recovery in the British economy.
Economic data was mixed.
U.S. consumer sentiment slid in September to its lowest in
five months as consumers saw higher interest rates and sluggish
economic growth ahead, a survey showed.
The Thomson Reuters/University of Michigan's final reading
on the overall index on consumer sentiment slipped to 77.5 in
September from 82.1 in August, the lowest final reading since
U.S. household spending rose in August, however, as incomes
were buoyed by solid wage gains, suggesting growing momentum in
the U.S. economy despite months of reduced government spending.
American families spent 0.3 percent more last month than the
month before, in line with the median forecast in a Reuters
poll, Commerce Department data showed.
U.S. Treasuries prices rose on concerns about the
implications of a U.S. government shutdown.
Benchmark 10-year Treasury notes were up 10/32,
their yields easing to 2.6099 percent.
Brent crude oil fell in volatile trading, marking its third
straight weekly loss, as diplomatic strides on Iran's nuclear
program and Syria's chemical weapons drained the geopolitical
risk premium from the markets.
Brent extended losses in post-settlement trading after Obama
said he spoke with Iranian President Hassan Rouhani.
Brent crude oil for November settled down 58 cents
at $108.63 a barrel.
U.S. crude futures for delivery in November fell 16
cents to settle at $102.87 a barrel.