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

By Herbert Lash

NEW YORK, Oct 7 (Reuters) - The dollar and global equitymarkets fell on Monday on growing investor concerns as theimpasse over the week-old U.S. government shutdown got entangledin negotiations to raise Washington's borrowing limit or riskdefault on U.S. sovereign debt.

A lack of progress by U.S. lawmakers in budget and debtceiling talks rattled investors, pulling stocks on Wall Streetdown almost 1 percent and sending European shares to afour-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," said Joe Manimbo, senior marketanalyst at Western Union Business Solutions.

"Now that it's entering its second week, investors aregrowing a bit more edgy and that's being played out in weakerworld stocks and the dollar staying on the defensive."

Stocks on Wall Street accelerated their decline just beforethe market closed, as did a measure of global equities.

MSCI's all-country world index, which tracksstock performance in 45 countries, was down 0.67 percent.

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 closed down 136.34 points, or 0.90 percent, at 14,936.24. TheStandard & Poor's 500 Index slid 14.38 points, or 0.85percent, at 1,676.12. The Nasdaq Composite Index felldown 37.38 points, or 0.98 percent, at 3,770.38.

The benchmark S&P 500 has fallen for two weeks and is downnearly 3 percent from its all-time closing high of 1,725.52reached on Sept. 18.

Consumer discretionary and the financial sectors were among the worst performers, down 1.40 percent and1.20 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 0.24 percent to 79.932, afterearlier trading at a low of 79.914, not far from an eight-monthlow of 79.627 hit on Thursday.

The dollar fell 0.46 percent to 0.9030 Swiss franc.The euro rose 0.14 percent to $1.3576. Against the yen, the dollar fell 0.71 percent to 96.77 yen.

Crude oil futures on both sides of the Atlantic pared lossesafter a sharp drop in earlier trade, following a report that akey pipeline delivering crude oil from Cushing, Oklahoma, hadresumed shipping after an earlier outage.

Operations of the Seaway oil pipeline, through which crudeoil flows from Cushing to Gulf Coast refineries, resumed after abrief shutdown, industry intelligence firm Genscape reportedearly on Monday. Cushing is the delivery point for the U.S. oilfutures contract.

Brent pared losses to settle 22 cents higher at$109.68 a barrel. The benchmark ended higher last week, snappinga three-week losing run.

U.S. crude pared some losses, but still settled 81cents lower at $103.03 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 up 4/32 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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