* U.S. govt shutdown to start after negotiations fail
* Yen bounces off one-month high ahead of PM's tax plan
By Dominic Lau
TOKYO, Oct 1 The dollar held near a 7-1/2 month
low against a basket of currencies on Tuesday as much of the
U.S. government began to shut down after Congress failed to
agree a compromise bill to fund government operations.
Competing spending measures flew back and forth between
Republican-controlled House of Representatives and
Democratic-led Senate late into Monday night in Washington but
Congress deadlocked over efforts by some Republicans to use the
temporary spending bill to delay implementation of President
Barack Obama's health care programme.
The shutdown comes a few weeks ahead of the next political
battle; to raise the federal government's debt ceiling. Failure
to increase the borrowing limit by mid-October could result in a
historic U.S. debt default that would threaten the U.S. economy
and send ripples around the globe.
"Risk assets have been sold off in the last few days ahead
of the actual news of the shutdown," said Tim Condon, chief
economist for Asia at ING in Singapore. "It's already priced
"The consensus view, which I share, is that the government
can remain shut down for a little while. They will come back and
revisit ahead of the debt ceiling debate. I think for now there
will be a cooling-off period."
S&P stock futures inched up 0.2 percent, unchanged
from earlier price action after the cash index fell 0.6 percent
on Monday, while U.S. Treasury futures slipped 4 ticks.
European shares were expected to open flat to slightly
higher, with London's FTSE 100 seen opening up as much
as 0.1 percent and Frankfurt's DAX up as much as 0.3
percent, according to financial bookmakers.
About a million U.S. federal employees could face unpaid
furloughs, but a shutdown would be unlikely to affect the United
States' s sovereign credit rating.
Todd Elmer, Citigroup's currency strategist, said the
partial shutdown will delay the release of the nonfarm payrolls
data this Friday, a key indicator which the Federal Reserve will
consider as it decides on the timing of scaling back its massive
"The bigger issue this raises is that the employment data
has the potential to be unusually muddled in the near term,
which means divining the implications for Fed policy may be more
difficult," Singapore-based Elmer wrote in a note.
"All else being equal, additional uncertainty on the quality
of the data probably argues for the Fed to be more cautious, in
addition to potential policymaker concern on increased drag from
But ING's Condon said the markets would find ways to gauge
the U.S. labour market even if the jobs report were to be
"They will be looking at other indicators. The Challengers,
the ADP numbers will give a sense of what's happening in the
labour market ... I am sort of hard pressed to see this turn
into something major. We've seen it before. Both sides will act
in time to avert a catastrophic outcome."
The dollar was down 0.1 percent against a basket of
currencies, not too far from a 7-1/2 month low touched on
JAPAN SALES TAX
The greenback was steady at 98.12 yen after rising to
as much as 98.48 yen immediately after Japan's Prime Minister
Shinzo Abe said he had decided to raise the sales tax as planned
from April 1 next year to 8 percent from the current 5 percent
to reform public finances.
Japan's Nikkei share average rose 0.4 percent.
MSCI's broadest index of Asia-Pacific shares outside Japan
added 0.4 percent, pulling away from a two-week
low after it slid 1.5 percent in the previous session. Regional
trading activity was expected to be light with China and Hong
Kong closed for National Day holiday.
China's manufacturing growth edged up only slightly last
month with the official Purchasing Managers' Index rising to
51.1 from August's 51.0, but below expectations and adding to
worries that its economy recovery has foundered.
In the commodity markets, gold ticked up 0.1 percent
to about $1,328.6 an ounce after gaining 7.6 percent in
July-September, reversing three straight quarters of decline.
Brent crude dipped 0.5 percent to around $107.8 a
barrel after gaining 6 percent in the third quarter, also ending
a three-quarter losing streak.