In first day of U.S. shutdown, no sign how it will end

Reuters

* Republicans propose restoring funding for certain programs

* Obama and Senate reject plan, call for full funding

* Dispute raises concerns over looming debt limit deadline

* Financial markets mostly relaxed so far

By Andy Sullivan and Thomas Ferraro

WASHINGTON, Oct 1 (Reuters) - President Barack Obama andcongressional Republicans came no closer to ending a standoff onTuesday that has forced the first government shutdown in 17years and thrown hundreds of thousands of federal employees outof work.

As police cordoned off landmarks like the Lincoln Memorialand government agencies stopped cancer treatments and tradenegotiations, Republicans in the House of Representatives movedto restore funding to national parks, veterans care and theDistrict of Columbia.

An effort to pass the three bills fell short on Tuesdayevening, but Republicans plan to try again on Wednesday. Theyare likely to be defeated by the Democratic-controlled Senate.

The standoff has raised new concerns about Congress'sability to perform its most basic duties. An even bigger battlelooms as Congress must raise the debt limit in coming weeks orrisk a U.S. default that could roil global markets.

"This is a mess. A royal screwup," said DemocraticRepresentative Louise Slaughter of New York.

Obama accused Republicans of taking the government hostagein order to sabotage his signature health care law, the mostambitious U.S. social program in five decades.

Republicans in the House view the Affordable Care Act as adangerous extension of government power and have coupled theirefforts to undermine it with continued government funding. TheDemocratic-controlled Senate has repeatedly rejected thoseefforts.

"They've shut down the government over an ideologicalcrusade to deny affordable health insurance to millions ofAmericans," Obama said in the White House Rose Garden.

Spending authority for much of the government expired atmidnight on Monday (0400 GMT), but that did not prevent theObama administration from opening the health-insurance exchangesthat form the centerpiece of the law.

Republicans said Obama could not complain about the impactof the shutdown while refusing to negotiate. "The White Houseposition is unsustainably hypocritical," said Michael Steel, aspokesman for House Speaker John Boehner.

VETERANS PASS BARRICADES

Republicans said their latest proposal would help elderlyveterans who earlier in the day pushed past barricades at theNational World War II Memorial to get into the shuttered site.

"They're coming here because they want to visit theirmemorial, the World War II memorial. But no, the Obamaadministration has put barricades around it," said RepublicanRepresentative Mike Simpson of Idaho.

All three bills won support from a majority of the House,but fell short of the two-thirds vote needed to pass underspecial rules that allow quick action. Republican leaders planto bring up the bills for a regular vote on Wednesday. Obamasaid he would veto the bills if they reached his desk.

Democrats said Republicans were avoiding a vote to restorefunding to the entire government because they were afraid itwould pass.

"That's important - a park? How about the kids who needdaycare?" said Democratic Representative Sander Levin ofMichigan. "You have to let all the hostages go. Every single oneof them."

The veterans in question had gotten in to the memorial withhelp from several Republican lawmakers. But they didn't seemparticularly interested in taking sides.

"It's just like a bunch of little kids fighting over candy,"said George, Atkinson, an 82-year-old Coast Guard veteran of theKorean War. "The whole group ought to be replaced, top mandown."

The selective spending plan appeared to temporarily uniteRepublicans, heading off a split between Tea Party conservativeswho pushed for the government funding confrontation andmoderates who appear to be losing stomach for the fight.

Representative Peter King, a New York moderate, estimatedthat more than 100 of the chamber's 232 Republicans would backObama's demand to restore all government funding withoutconditions. That would be enough to easily pass the House withthe support of the chamber's 200 Democrats.

The shutdown closed landmarks like the Grand Canyon andpared the government's spy agencies by 70 percent. InWashington, the National Zoo shut off a popular "panda cam" thatallowed visitors to view its newborn panda cub online. InPennsylvania, white supremacists had to cancel a planned rallyat Gettysburg National Military Park.

MARKET REACTION

Whether the shutdown represents another bump in the road fora Congress increasingly plagued by dysfunction or is a sign of amore alarming breakdown in the political process could bedetermined by the reaction among voters and on Wall Street.

Stock investors appeared to be taking the news in stride onTuesday with investors confident a deal could be reachedquickly. The S&P 500 closed up 0.8 percent and the NasdaqComposite gained 1.2 percent.

But the U.S. Treasury was forced to pay the highest interestrate in about 10 months on its short-term debt as many investorsavoided bonds that would be due later this month, when thegovernment is due to exhaust its borrowing capacity.

If Congress can agree to a new funding bill soon, theshutdown would have little impact on the world's largesteconomy.

A week-long shutdown would slow U.S. economic growth byabout 0.3 percentage points, according to Goldman Sachs, but alonger disruption could weigh on the economy more heavily asfurloughed workers scale back personal spending.

The last shutdown in 1995 and 1996 cost taxpayers $1.4billion, according to congressional researchers.

The political crisis raised fresh concern about whetherCongress can meet a crucial mid-October deadline to raise thegovernment's $16.7 trillion debt ceiling. Some Republicans seethat vote as another opportunity to undercut Obama's healthcarelaw.

Failure to raise the debt limit would force the country todefault on its obligations, dealing a blow to the economy andsending shockwaves around global markets.

A 2011 standoff over the debt ceiling hammered consumerconfidence and prompted a first-ever downgrade of the UnitedStates' credit rating.

Analysts say this time it could be worse. Lawmakers backthen were fighting over how best to reduce trillion-dollarbudget deficits, but this time they are at loggerheads over anissue that does not lend itself to compromise as easily: anexpansion of government-supported health benefits to millions ofuninsured Americans.

Republicans have voted more than 40 times to repeal or delay"Obamacare," but they failed to block the launch of its onlineinsurance marketplaces on Tuesday. The program had a rocky startas government websites struggled to cope with heavy onlinetraffic.

"What I'm hearing from my constituents at home is if this isthe only way to stop the runaway train called the federalgovernment, then we're willing to try it," said Texas SenatorJohn Cornyn, the second-ranking Republican in the Senate.

A Reuters/Ipsos poll showed 24 percent of Americans wouldblame Republicans, while 19 percent would blame Obama orDemocrats. Another 46 percent said everyone would be to blame.

The shutdown battles of the 1990s didn't substantiallyaffect public's opinion of then-Democratic President BillClinton or his Republican adversaries, the Gallup pollingorganization said.

Republicans and Democrats traded blame for the shutdown, butmany seemed deeply embarrassed for the institution as a whole.

Several said they planned to donate their salaries tocharity or forego pay altogether.

"This is a black eye on our government at all levels," saidRepublican Representative Michael Grimm of New York. "I thinkit's a low point for us."

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