GLOBAL MARKETS-Stocks, dollar slide as U.S. impasse frays nerves

Reuters

* Lack of progress in U.S. debt, budget talks shakesconfidence

* Wall Street stocks open lower, following equitieselsewhere

* Dollar weakens against yen, near 8-mth low against euro

* Oil falls on concerns U.S. government shutdown will curbdemand

By Herbert Lash

NEW YORK, Oct 7 (Reuters) - The dollar fell and globalequity markets slumped on Monday as the impasse over theweek-old U.S. government shutdown got entangled in negotiationsto raise Washington's borrowing limit or risk default on U.S.sovereign debt.

A lack of progress by U.S. lawmakers in budget and debtceiling talks rattled investors, leading stocks on Wall Streetto open lower and sending European shares to a four-month low.

Republican House of Representatives Speaker John Boehnervowed not to raise the U.S. debt ceiling without a "seriousconversation" about what is driving the debt, while Democratssaid it was irresponsible and reckless to raise the possibilityof a U.S. default.

The dollar fell, hovering near an eight-month low against abasket of major trading currencies, and crude oil prices slippedas the government shutdown and looming fight over the debtceiling clouded the economic outlook.

"Last week investors were hopeful that the governmentshutdown would be short-lived in nature," said Joe Manimbo,senior market analyst at Western Union Business Solutions.

"Now that it's entering its second week, investors are growing abit more edgy and that's being played out in weaker world stocksand the dollar staying on the defensive."

MSCI's all-country world stock index, whichtracks equity performance in 45 countries, was down 0.71percent. The FTSEurofirst 300 index of top European shares was down 0.45 percent.

On Wall Street, the Dow Jones industrial average wasdown 84.23 points, or 0.56 percent, at 14,988.35. The Standard &Poor's 500 Index was down 7.31 points, or 0.43 percent,at 1,683.19. The Nasdaq Composite Index was down 14.33points, or 0.38 percent, at 3,793.42.

Investors flocked to perceived safe havens like the yen andSwiss franc, driving the dollar to it weakest since mid-Augustagainst the Japanese currency.

The dollar index fell 0.05 percent to 80.08, afterearlier trading at a low of 79.914, not far from an eight-monthlow of 79.627 hit on Thursday.

The dollar fell 0.15 percent to 0.9057 Swiss franc.The euro traded near break-even, slipping 0.09 percent to$1.3545. Against the yen, the dollar fell 0.38percent to 97.09 yen.

Brent crude fell more than 1 percent to below $108 a barrelat one point as oil production resumed in the Gulf of Mexicoafter a tropical storm. Concerns over the U.S. governmentshutdown and its economic impact also weighed on prices.

Brent was off 83 cents to $108.63 a barrel. Thebenchmark ended higher last week, snapping a three-week losingrun.

U.S. crude fell $1.34 to $102.50 a barrel.

U.S. Treasuries prices gained as lawmakers in Washingtonshowed no progress toward ending the partial governmentshutdown.

The benchmark 10-year U.S. Treasury note was up9/32 in price to yield 2.6119 percent.

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