NEW YORK Investors in funds worldwide pulled $1.3 billion from stock funds in the latest week, as the U.S. government partially shut down because of a budget impasse and more concerns arose about the debt ceiling, data from a Bank of America Merrill Lynch Global Research report showed Friday.
The outflows from stock funds, in the week ended October 2, extended the prior week's withdrawals of $1.5 billion, according to the report, which also cited data from fund-tracking firm EPFR Global. Congress failed to reach a midnight deadline to agree on a spending bill, leading to the shutdown on October 1.
The shutdown was the first in 17 years. Worries also grew ahead of a looming fight between Democratic and Republican lawmakers over raising the U.S. debt ceiling. The United States could face an unprecedented default if Congress does not raise the $16.7 trillion debt limit by October 17.
Outflows from stock and bond funds over the past two weeks have been small, compared with outflows of $60 billion over the three weeks beginning July 28, 2011, the report said. Those outflows came during a prior round of debt ceiling debates that led Standard & Poor's to cut the U.S. credit rating from AAA to AA-plus.
Emerging market stock funds had outflows of $2.1 billion in the week ended October 2, marking their first outflows in four weeks, the report said. U.S. stock funds had smaller outflows of $600 million, less than one-tenth of the prior week's outflows of $7.4 billion.
Despite worries over the U.S. government shutdown and debt ceiling, the S&P 500 stock index rose a slight 0.1 percent over the weekly period. MSCI's emerging market stocks index fell 1 percent.
European stock funds, meanwhile, attracted $900 million in new cash, down from inflows of $2.3 billion the prior week but still marking their 14th straight week of inflows. The inflows came despite the FTSEurofirst 300 Index's decline of 0.8 percent over the weekly period.
Investors pulled $900 million from bond funds, reversing the prior week's inflows of $4.5 billion, which were the biggest in five months. Despite the outflows from risky stocks, risky high-yield junk bond funds attracted $1.3 billion, marking their fourth straight week of inflows.
Emerging market bond funds had $200 million in outflows, reversing inflows of $600 million the prior week. Funds that hold Treasury Inflation Protected-Securities also had outflows of $200 million, marking the 25th straight week of withdrawals from the funds.
TIPS prices have been hit by a bond market selloff following signals in May that the Federal Reserve could scale back its $85 billion in monthly bond purchases this year. The Barclays U.S. TIPS Index was down 6.6 percent for the year.
Investors also pulled $600 million from commodities funds, which mainly invest in physical gold. The precious metal on October 1 slid below $1,300 per ounce to its lowest price since early August.
(Reporting by Sam Forgione; Editing by James Dalgleish and Steve Orlofsky)