European shares fall as U.S. debt impasse unnerves investors


LONDON, Oct 7 (Reuters) - European stocks fell on Monday asa lack of progress in resolving U.S. government disputes overthe federal budget and debt ceiling dented confidence in theworld's largest economy.

The FTSEurofirst 300 index of pan-European sharesfell 0.5 percent to 1,237.38 points while the euro zone EuroSTOXX 50 shed 0.7 percent to 2,907.28 points.

U.S. Democrats and Republicans came no closer on Sunday to abudget agreement that would end a government shutdown, let alonereaching a deal on the U.S. borrowing limit by Oct. 17 to avoida default.

Many market players still expected a deal to be reached butsaid volatility was likely in the short term. Volatility on theEuro STOXX 50 ended last week just shy of 20.

"We're going to wobble our way down until about Thursday andthen there's going to be a solution and there will be amelt-up," or rise in market prices, said Justin Haque, a brokerat Hobart Capital Markets.

He expected the Euro STOXX 50 to fall by between 1.5 percentand 2.5 percent before an agreement is reached.

The Euro STOXX 50 is less than 1 percent away from atwo-year high hit in September but has flat-lined over the pasttwo weeks as the deadlock in the United States and a politicalcrisis in Italy curbed appetite for stocks.

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