* US stock futures, dollar hit as government closure nears
* Euro pressured by its own political problems as Italy govtteeters
* Asian shares dragged lower, China factory surveydisappoints
By Wayne Cole
SYDNEY, Sept 30 (Reuters) - U.S. stock futures and thedollar came under pressure on Monday as a shutdown of the U.S.government seemed ever more likely, while the euro had politicaltroubles of its own as the Italian government teetered on theedge of collapse.
Hardly helping was a surprise downward revision to activityin China's factory sector. While the final HSBC PurchasingManagers' Index (PMI) did edge up to 50.2 in September, that waswell down on the preliminary reading of 51.2.
The end result was a shift out of equities and toward safehavens including the yen, Swiss franc and some sovereign debt.U.S. Treasuries also benefited from a view that the economicdamage done by a government closure would be yet another reasonfor the Federal Reserve to keep interest rates low for longer.
"Weekend political dynamics in the U.S. and Italy are likelyto keep markets on the defensive at the start of a busy week fordata and policy events," Barclays analysts wrote in a note.
The damage was clear in U.S. stock futures, where the S&P500 contract shed 0.7 percent, as did the E-MINI S&P. In Europe, spread betters predicted markets in the UK,France and Germany would start with losses of up to 1 percent.
Asian stocks bore the early brunt, with MSCI's broadestindex of shares outside Japan down 1.2 percentat a two-week low. Still, it gained 5.7 percent for the month ofSeptember, on track for its best month since January 2012.
Japan's Nikkei fell 1.5 percent on Monday and SouthKorean shares lost 0.6 percent. Australia's main indexslid 1.4 percent from five-year highs, their biggestone-day drop since early August.
The air of risk aversion lifted the yen across the board.The dollar fell to 97.89 yen from 98.20 late in New Yorkon Friday, while the euro hit 132.10 yen from 132.78.
The euro lost ground to the Swiss franc, hitting its lowestsince early May at one point. Against the U.S.dollar, it was off a quarter of a cent at $1.3496.
The tension also took a toll on emerging market currencies,with the Indonesian rupiah and Malaysian ringgit both weakening.
The losses came as Italian Prime Minister Enrico Letta saidhe would go before parliament on Wednesday for a confidence voteafter ministers in Silvio Berlusconi's centre-right party pulledout of his government at the weekend.
Letta said he wanted to avoid elections under the currentwidely criticised voting system which he said would produce morestalemate, but it was not clear if an alternative majority couldbe found.
Meanwhile in Washington, it seemed increasingly unlikelythat Republicans and Democrats could reach a deal on funding thegovernment before the fiscal year ends at midnight on Monday.
If so, many government employees will be furloughed and theLabor Department will not issue its monthly employment reportscheduled for Friday.
It would also set the stage for a far-more consequentialfight to raise the federal government's borrowing authority.Failure to raise the $16.7 trillion debt ceiling by mid-Octobermight force the United States to default on some paymentobligations - an event that could cripple the economy and sendshockwaves around the globe.
Markets have always assumed it would never actually come todefault, given the grave repercussions. Indeed, U.S. governmentdebt still seemed to be considered a safe haven with 10-yearTreasury yields falling 3 basis points to a seven-week low at2.59 percent.
Investors also bid up Eurodollar futures onexpectations that a drawn-out government shutdown andbrinkmanship over the debt ceiling would keep the Fed fromtapering its asset buying anytime soon.
The political bickering overshadowed data from Japan showing manufacturing activity expanded in September at the fastestpace since the earthquake and nuclear disaster of early 2011.
In commodity markets, gold was a shade firmer at $1,338.54an ounce. Copper futures dipped 0.2 percent, butthe metal was still on track for its biggest quarterly gainsince March 2012 thanks to steadying global growth.
Diplomatic progress between the U.S. and Iran dragged Brentoil for November down 88 cents to $107.75 a barrel,while NYMEX crude lost $1.29 to $101.58.
- Politics & Government