* US stock futures, dollar hit as government closure nears
* Euro pressured by its own political problems as Italy govt
* Asian shares dragged lower, China factory survey
By Wayne Cole
SYDNEY, Sept 30 U.S. stock futures and the
dollar came under pressure on Monday as a shutdown of the U.S.
government seemed ever more likely, while the euro had political
troubles of its own as the Italian government teetered on the
edge of collapse.
Hardly helping was a surprise downward revision to activity
in China's factory sector. While the final HSBC Purchasing
Managers' Index (PMI) did edge up to 50.2 in September, that was
well down on the preliminary reading of 51.2.
The end result was a shift out of equities and toward safe
havens including the yen, Swiss franc and some sovereign debt.
U.S. Treasuries also benefited from a view that the economic
damage done by a government closure would be yet another reason
for the Federal Reserve to keep interest rates low for longer.
"Weekend political dynamics in the U.S. and Italy are likely
to keep markets on the defensive at the start of a busy week for
data and policy events," Barclays analysts wrote in a note.
The damage was clear in U.S. stock futures, where the S&P
500 contract shed 0.7 percent, as did the E-MINI S&P
. In Europe, spread betters predicted markets in the UK,
France and Germany would start with losses of up to 1 percent.
Asian stocks bore the early brunt, with MSCI's broadest
index of shares outside Japan down 1.2 percent
at a two-week low. Still, it gained 5.7 percent for the month of
September, on track for its best month since January 2012.
Japan's Nikkei fell 1.5 percent on Monday and South
Korean shares lost 0.6 percent. Australia's main index
slid 1.4 percent from five-year highs, their biggest
one-day drop since early August.
The air of risk aversion lifted the yen across the board.
The dollar fell to 97.89 yen from 98.20 late in New York
on Friday, while the euro hit 132.10 yen from 132.78.
The euro lost ground to the Swiss franc, hitting its lowest
since early May at one point. Against the U.S.
dollar, it was off a quarter of a cent at $1.3496.
The tension also took a toll on emerging market currencies,
with the Indonesian rupiah and Malaysian ringgit both weakening.
The losses came as Italian Prime Minister Enrico Letta said
he would go before parliament on Wednesday for a confidence vote
after ministers in Silvio Berlusconi's centre-right party pulled
out of his government at the weekend.
Letta said he wanted to avoid elections under the current
widely criticised voting system which he said would produce more
stalemate, but it was not clear if an alternative majority could
Meanwhile in Washington, it seemed increasingly unlikely
that Republicans and Democrats could reach a deal on funding the
government before the fiscal year ends at midnight on Monday.
If so, many government employees will be furloughed and the
Labor Department will not issue its monthly employment report
scheduled for Friday.
It would also set the stage for a far-more consequential
fight to raise the federal government's borrowing authority.
Failure to raise the $16.7 trillion debt ceiling by mid-October
might force the United States to default on some payment
obligations - an event that could cripple the economy and send
shockwaves around the globe.
Markets have always assumed it would never actually come to
default, given the grave repercussions. Indeed, U.S. government
debt still seemed to be considered a safe haven with 10-year
Treasury yields falling 3 basis points to a seven-week low at
Investors also bid up Eurodollar futures on
expectations that a drawn-out government shutdown and
brinkmanship over the debt ceiling would keep the Fed from
tapering its asset buying anytime soon.
The political bickering overshadowed data from Japan showing
manufacturing activity expanded in September at the fastest
pace since the earthquake and nuclear disaster of early 2011.
In commodity markets, gold was a shade firmer at $1,338.54
an ounce. Copper futures dipped 0.2 percent, but
the metal was still on track for its biggest quarterly gain
since March 2012 thanks to steadying global growth.
Diplomatic progress between the U.S. and Iran dragged Brent
oil for November down 88 cents to $107.75 a barrel,
while NYMEX crude lost $1.29 to $101.58.