GLOBAL MARKETS-Treasury rates rise, U.S. stocks fall as Washington talks stall

Reuters

* U.S. debt, budget talks suspended

* Dollar pares gain, U.S. stocks edge lower

* U.S. Treasuries prices slip

* Europe data shows signs of strength

By Caroline Valetkevitch

NEW YORK, Oct 15 (Reuters) - U.S. short-term bill rates rose

and stocks slid on Wall Street as U.S. Senate fiscal

negotiations were suspended, making prospects for an agreement

to end the U.S. government's budget and debt impasse less

promising.

The uncertainty surrounding the U.S. debt ceiling has led

to a substantial selloff in short-term U.S. Treasury bills. The

Treasury's weekly auctions of three- and six-month bills drew

below average demand as investors become increasingly concerned

about the chances of a delayed or missed coupon payment. The

value of bids received for the sales over those accepted was the

lowest since 2009. For analysis on debt sales, see

The U.S. political standoff initially showed signs of

giving way to a Senate deal to reopen federal agencies and

prevent a damaging default on federal debt. The deadline to lift

the U.S. debt ceiling is Oct. 17. Factbox on default risks

Senate Majority Leader Harry Reid, a Democrat, and his

Republican counterpart, Mitch McConnell, ended talks on Monday

with Reid saying they had made "tremendous progress."

But U.S. Senate negotiations to lift the debt limit and

repopen the U.S. government, which has been in a partial

shutdown since Oct. 1, were suspended Tuesday afternoon until

House Speaker John Boehner works out a fiscal plan that can

proceed in the U.S. House, according to Sen. Richard Durbin.

"The odds that there won't be a deal over the next month

are near zero, but there is some chance we won't see something

by the 17th. If that happens ... we could easily correct 3-5

percent," said Jim McDonald, who helps oversee $803 billion as

chief investment strategist at Chicago-based Northern Trust

Global Investments.

The Dow Jones industrial average was down 111.64

points, or 0.73 percent, at 15,189.62. The Standard & Poor's 500

Index was down 10.59 points, or 0.62 percent, at

1,699.55. The Nasdaq Composite Index was down 19.39

points, or 0.51 percent, at 3,795.89.

MSCI's world equity index, which tracks

shares in 45 countries, was down 0.1 percent, giving up earlier

gains. In Europe, the FTSEurofirst 300 ended up 0.9

percent.

In the U.S. Treasury bill market, trading was choppy, with

rates on Treasury bills maturing soon after Oct. 17 the most

sensitive to the back and forth in Washington.

Earlier, Treasury rates on T-bill issues due in October to

November had fallen to their lowest level in a week, although

they remained elevated compared with three weeks ago.

Even though the securities sold would not mature for another

three- and six months, the Treasury's weekly auctions of three-

and six-month bills on Tuesday drew demand that was "way below

the average over the past few months" with the value of bids

received over those accepted the lowest since 2009, said Stone &

McCarthy Research Associates analyst Cathy Guo.

The one-month Treasury bills due on Nov. 7 are the

most sensitive to efforts to raise the statutory $16.7 trillion

borrowing limit. The benchmark 10-year U.S. Treasury note

was down 12/32, the yield at 2.7258 percent.

DOLLAR HIGHER

The dollar pared earlier gains, which came on optimism over

possible progress in Washington.

The dollar index was last up 0.3 percent at 80.512

after touching its highest since Sept. 18.

The euro was down 0.3 percent on the day after

touching a two-week low of $1.3478.

In Europe, an unexpected rise in German analyst and investor

sentiment lifted the outlook for the region's largest economy.

The influential ZEW Institute's monthly poll of economic

sentiment rose to its highest level since April 2010 and beat a

Reuters poll forecast for no change.

A separate report on price pressures in Britain showed

inflation was higher than expected in September and house prices

had risen sharply, adding to doubts over how long the central

bank can hold down interest rates.

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