U.S. debt doubts keep lid on shares, yen rises

Reuters
Traders work on the floor of the New York Stock Exchange
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Traders work on the floor of the New York Stock Exchange August 28, 2013. REUTERS/Brendan McDermid

By Richard Hubbard

LONDON (Reuters) - Slow progress in talks to avert a U.S. debt default kept world shares and oil under pressure on Monday, while the yen rose as some investors shifted into safer assets.

The cautious mood was reflected in the market's neutral reaction to news that factory output in the euro zone grew at its strongest pace in two years in August.

"It's not time to be adventurous right now," said Alastair Winter, chief economist at Daniel Stewart. "I don't think people should be in a rush to do anything."

U.S. stock index futures showed the failure of efforts over the weekend to resolve the gridlock in Washington would prompt falls on Wall Street, although volumes were expected to be kept light by the Columbus Day holiday. (.N)

Promising signals had emerged from Senate negotiations on Sunday, but there were no concrete moves towards passing legislation needed to fund the government and raise its borrowing authority in time to avoid a default later this week.

The dollar, as it has done throughout the crisis, bore the brunt of the nervousness, shedding 0.3 percent against the safer option of the yen to trade at around 98.25 yen.

"We think the closer we get to the debt ceiling deadline without an agreement, (the more) dollar/yen will come under intensive selling pressure," said Lee Hardman, currency economist at BTMU.

The greenback also slipped 0.3 percent against the Swiss franc at 0.9098 francs while the euro rose 0.1 percent to $1.3558. (FRX/)

UNCERTAINTY

Shares markets outside the U.S. reflected uncertainty about events in Washington. But equities markets continue to be supported by hopes that the deadlock provides the Federal Reserve with reasons to delay cutting back its stimulus for the economy.

Europe's broad FTSE Eurofirst 300 index (.FTEU3) was little changed by midday, while stocks tracked by MSCI's world equity index were also unchanged, with Hong Kong and Japan having been closed for holidays.

MSCI's broadest index of Asia-Pacific shares outside Japan , which had hit a three-week high on Friday, eased 0.2 percent.

Adding to market worries, China said exports dropped 0.3 percent in September from a year earlier against expectations of a 6 percent rise, while annual inflation rate hit a 7-month high of 3.1 percent, limiting scope for rate cuts.

The decline in exports from the world's second largest economy has raised questions over the global recovery, which were highlighted by the IMF last week when it trimmed its forecast to the lowest since the global recession in 2009.

Commodity markets mirrored uncertainty over the outlook with gold hovering near a three-month low at $1276.80 an ounce.

Brent crude dropped below $111 a barrel while copper edged up 0.6 percent to $7,248 a tonne as strong imports of the metal from top consumer China boosted optimism about the outlook for demand, though gains were capped by events in Washington.

(Additional reporting by Anooja Debnath; Editing by John Stonestreet and Patrick Graham)

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