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 lower, following equities elsewhere

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

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

By Herbert Lash

NEW YORK, Oct 7 (Reuters) - The dollar and global equitymarkets fell on Monday as the impasse over the week-old U.S.government shutdown got entangled in negotiations to raiseWashington's borrowing limit or risk default on U.S. sovereigndebt.

A lack of progress by U.S. lawmakers in budget and debtceiling talks rattled investors, pulling stocks on Wall Streetdown 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 0.49percent.

European stocks drifted lower in thin trading as the U.S.budget impasse dragged on, pushing the FTSEurofirst 300 index of top regional shares down 0.21 percent to 1,241.09, itslowest close in four weeks.

On Wall Street, the Dow Jones industrial average wasdown 67.82 points, or 0.45 percent, at 15,004.76. The Standard &Poor's 500 Index was down 5.48 points, or 0.32 percent,at 1,685.02. The Nasdaq Composite Index was down 16.85points, or 0.44 percent, at 3,790.90.

The benchmark S&P 500 has fallen for two weeks and is downnearly 3 percent from its all-time closing high of 1,725.52,reached on Sept. 18, over concerns about the budget impasse'simpact on the economy.

The financial and energy sectors were amongthe worst performers, down 0.9 percent and 0.5 percent,respectively.

"Thus far, investors have felt assured that they arewatching the re-run of an old cliffhanger movie, but the risingfrequency of the replay has instilled a sense of deja-vu," saidAndrew Wilkinson, chief economic strategist at Miller Tabak & Coin New York.

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 0.22 percent to 79.941, afterearlier trading at a low of 79.914, not far from an eight-monthlow of 79.627 hit on Thursday.

The dollar fell 0.4 percent to 0.9035 Swiss franc.The euro rose 0.11 percent to $1.3572. Against the yen, the dollar fell 0.57 percent to 96.90 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 subsequently pared some losses, but was stilloff 21 cents at $109.25 a barrel. The benchmark ended higherlast week, snapping a three-week losing run.

U.S. crude fell $1.09 to $102.75 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 up4/32 in price to yield 2.6302 percent.

Low-risk euro zone bonds pushed higher, with safe-havenGerman Bunds outpaced the rest of the euro zone market. Bundfutures rose 35 ticks to settle at 140.31.

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