GLOBAL MARKETS-U.S. debt doubts keep lid on shares, yen rises

Reuters

* Wall Street set to fall on deadlock in fiscal talks

* Dollar slips against safe-haven yen, Swiss franc

* Chinese exports drop unexpectedly in September

* Brent oil under $111 on U.S. uncertainty, Chinese data

By Richard Hubbard

LONDON, Oct 14 (Reuters) - Slow progress in talks to avert a

U.S. debt default kept world shares and oil under pressure on

Monday, while the yen rose as some investors shifted into safer

assets.

The cautious mood was reflected in the market's neutral

reaction to news that factory output in the euro zone grew at

its strongest pace in two years in August.

"It's not time to be adventurous right now," said Alastair

Winter, chief economist at Daniel Stewart. "I don't think people

should be in a rush to do anything."

U.S. stock index futures showed the failure of efforts over

the weekend to resolve the gridlock in Washington would prompt

falls on Wall Street, although volumes were expected to be kept

light by the Columbus Day holiday.

Promising signals had emerged from Senate negotiations on

Sunday, but there were no concrete moves towards passing

legislation needed to fund the government and raise its

borrowing authority in time to avoid a default later this week.

The dollar, as it has done throughout the crisis, bore the

brunt of the nervousness, shedding 0.3 percent against the safer

option of the yen to trade at around 98.25 yen.

"We think the closer we get to the debt ceiling deadline

without an agreement, (the more) dollar/yen will come under

intensive selling pressure," said Lee Hardman, currency

economist at BTMU.

The greenback also slipped 0.3 percent against the Swiss

franc at 0.9098 francs while the euro rose 0.1

percent to $1.3558.

UNCERTAINTY

Shares markets outside the U.S. reflected uncertainty about

events in Washington. But equities markets continue to be

supported by hopes that the deadlock provides the Federal

Reserve with reasons to delay cutting back its stimulus for the

economy.

Europe's broad FTSE Eurofirst 300 index was little

changed by midday, while stocks tracked by MSCI's world equity

index were also unchanged, with Hong Kong and

Japan having been closed for holidays.

MSCI's broadest index of Asia-Pacific shares outside Japan

, which had hit a three-week high on Friday,

eased 0.2 percent.

Adding to market worries, China said exports dropped 0.3

percent in September from a year earlier against expectations of

a 6 percent rise, while annual inflation rate hit a 7-month high

of 3.1 percent, limiting scope for rate cuts.

The decline in exports from the world's second largest

economy has raised questions over the global recovery, which

were highlighted by the IMF last week when it trimmed its

forecast to the lowest since the global recession in 2009.

Commodity markets mirrored uncertainty over the outlook with

gold hovering near a three-month low at $1276.80 an

ounce.

Brent crude dropped below $111 a barrel while copper

edged up 0.6 percent to $7,248 a tonne as strong imports

of the metal from top consumer China boosted optimism about the

outlook for demand, though gains were capped by events in

Washington.

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