* Dollar on defensive as US government stays shut, debt
* Obama meets congressional leaders, progress to be tough
* Stocks slip, bonds gain amid risk aversion
By Wayne Cole
SYDNEY, Oct 3 The U.S. dollar stayed under
pressure in Asia on Thursday in what looked likely to be another
jittery session for stock markets as President Barack Obama met
congressional leaders to try and break a deadlock on the U.S.
So far investors have been wagering that some deal would be
reached in time to avoid lasting damage to the economy, although
another fight over the debt ceiling still looms.
The ceiling is far more important than the shutdown, as it
could lead to an unprecedented default by the United States, an
outcome the market assumes is unthinkable.
Both U.S. and European shares ended Wednesday with only
modest losses, while the euro got a lift as the Italian
government survived a no-confidence vote and the head of the
European Central Bank made no effort to talk down the currency.
The Dow Jones industrial average eased 0.39 percent,
while the S&P 500 was just a fraction lower. MSCI's world
equity index dipped 0.13 percent.
The dollar took another hit when the head of the Federal
Reserve Bank of Boston, Eric Rosengren, said the government
shutdown could further delay a tapering of its asset-buying
program because of a lack of official data on the economy.
That only added to the swing in market expectations on the
future course of U.S. interest rates, which has been dramatic.
Just a month ago the futures market had predicted
the Fed funds rate would be up around 1.465 percent by the end
of 2015. Now it implies a rate of just 0.745 percent.
That in turn has helped drag yields on the benchmark 10-year
U.S. Treasury note down to 2.62 percent, from a
September peak of 2.99 percent.
The dollar's diminishing yield advantage has seen it peel
off to a five-week low on the yen at 97.27. The euro
hopped up three quarters of a cent to $1.3580, while the
dollar index touched its lowest since February.
In contrast to the increasingly dovish outlook for U.S.
rates, the ECB on Wednesday left interest rates unchanged and
gave no hint it was considering further easing.
Also aiding sentiment on European assets was a victory for
Italian Prime Minister Enrico Letta's government in a no
confidence vote, which ended fears that the euro zone's
third-largest economy would be forced into new elections.
Italian shares and bonds both rose as it become clear that
former Prime Minister Silvio Berlusconi would drop his attempts
to bring down the government, sending Milan's FTSE MIB share
index up as much as 1.8 percent, before closing 0.7
In commodity markets, the lower dollar tended to support
prices in choppy trading. Gold rebounded to $1,315.41 an ounce
, so recouping most of Tuesday's sharp fall. Copper
futures added just over 1 percent.
Brent crude for November rose $1.14 to $109.08 a
barrel. U.S. crude was off 28 cents early on Thursday at
$103.83 a barrel, but that followed a jump of more than $2 on