* Dollar rebounds, but not far off eight-month low
* Wall Street, Europe shares rise but budget, debt fears
* U.S. one-month T-bill rates hover at highest in 10 months
By Wanfeng Zhou
NEW YORK, Oct 4 (Reuters) - Major stock markets edged higher
on Friday but were headed for a second week of losses while the
dollar hovered near an eight-month low on fears the budget
standoff in Washington will drag on until politicians reach a
deal to raise the U.S. debt ceiling.
On Wall Street, the three major indexes were on track to end
the week with steep losses, despite modest gains on Friday, as
the partial U.S. government shutdown entered its fourth day and
appeared likely to drag on for another week or more.
While selling has been orderly so far, investors see
volatility rising if the shutdown becomes prolonged, which would
hurt the economic recovery. Many do not expect lawmakers to
reach an agreement on the budget until they come up against the
deadline to raise the U.S. government's $16.7 trillion debt
ceiling to prevent a U.S. default on its debt.
Treasury Secretary Jack Lew has said the government will hit
the limit no later than Oct. 17.
Fears of a U.S. default lifted interest rates on
ultra-short-term U.S. Treasury bills to their highest levels in
over 10 months on Friday, while the cost of insuring one-year
U.S. government bonds against default hit the highest level
since August 2011.
Investor confidence was boosted Thursday afternoon when
reports surfaced that House of Representatives Speaker John
Boehner told his Republican party colleagues that he would not
let the stalemate over the budget interfere with raising the
On Friday, however, Boehner said the Republican-controlled
House will not vote on a "clean" spending bill without
conditions to end the government shutdown and demanded spending
cuts in exchange for raising the government's borrowing limit.
The S&P 500 showed little movement after his brief news
"If there's no agreement by the end of next week, the
concern will really become greater and the impact will be more
pronounced," said Kate Warne, investment strategist at Edward
Jones in St. Louis. Warne helps oversee $670 billion in assets.
MSCI's world equity index, which tracks
shares in 45 countries, edged up 0.1 percent, but was on track
for a weekly loss of 0.5 percent.
Top international policymakers have warned that a failure to
raise the U.S. debt ceiling would be a serious blow to the world
economy. On Thursday, Dennis Lockhart, president of the Federal
Reserve Bank of Atlanta, said the shutdown will hurt growth in
the last quarter of this year, while the Bank of Japan said an
extended U.S. budget standoff would have a severe global impact.
Still, many long-term investors believe Congress will
eventually resolve the budget and debt issues, which would
ensure that any stock pullback would be followed by a rebound.
"Day by day, people are getting more tense," said Francois
Savary, chief investment officer at Swiss firm Reyl. "But we are
betting on the fact that a deal will be found, and this should
provide us with the opportunity to increase our equity
The Dow Jones industrial average gained 59.66 points,
or 0.40 percent, to 15,056.14. The Standard & Poor's 500 Index
rose 9.56 points, or 0.57 percent, to 1,688.22. The
Nasdaq Composite Index added 31.18 points, or 0.83
percent, to 3,805.52.
The S&P 500 index has fallen for nine of the past 12
sessions, but several sectors rose on Friday, including
materials and healthcare stocks.
European shares rose 0.1 percent to end at 1,243.74
The U.S. shutdown delayed the government's release of
non-farm payrolls data for September, which had been scheduled
for Friday. The Labor Department's monthly jobs market report
has been playing a key role in the Federal Reserve's assessment
of the economy in its deliberations on when to scale back its
stimulus. The postponement had no noticeable market impact.
The dollar rose for the first time in six days. It
gained 0.5 percent to 80.136 against a basket of major
currencies. The euro slipped 0.5 percent to $1.3552. The
dollar hit an eight-month low on Thursday on views that the
government shutdown will further delay the Fed's plans to reduce
its bond-buying program.
On Oct. 17, when the government is projected to reach its
debt ceiling, $85 billion of Treasury bills will mature. The
interest rate on that T-bill issue last traded at
0.13 percent, up 2 basis points from late on Thursday and up 9
basis points on the week.
Interest rates on T-bills that mature in the first half of
November last traded at 0.11 percent, 5 basis points higher than
late Thursday and up 9 basis points from a week earlier.
"We are seeing some real volatility in the bill sector,"
said Jason Rogan, managing director of Treasuries trading at
Guggenheim Partners in New York. "Bills are showing the first
signs of distress."
The benchmark 10-year U.S. Treasury note was down 12/32, its
yield at 2.646 percent.
Oil prices were steady as a tropical storm approached the
oil-producing regions around the Gulf of Mexico, offsetting
worries that a prolonged U.S. government shutdown will dent
Brent crude rose 6 cents to $109.06. U.S. oil
rose 13 cents to $103.44.
Gold slipped to $1,308 an ounce from $1,316.69.