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GLOBAL MARKETS-Stocks head for weekly loss, dollar hovers at 8-month low

* 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

debt ceiling.

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.