* Euro holds near 8-month high vs dollar, eyes 2013 peak
* European shares lower, world shares head for 2nd week in
* Nikkei hits a 4-week low, BOJ more upbeat on capex
* Bond markets remain largely relaxed about U.S. tensions
By Marc Jones
LONDON, Oct 4 (Reuters) - The government shutdown and
looming debt deadline in the United States kept the dollar
pinned at an eight-month low on Friday and drove world shares
towards a second week of losses.
With no clear progress in Washington, financial markets were
facing up to the possibility the deadlock could extend to Oct.
17, when the government will effectively run out of cash.
European shares opened weaker for a third day, down
0.3 percent in early trading after Asian markets were led lower
by a near 1 percent drop on Tokyo's Nikkei.
World stocks overall were down 0.15 percent
on the day and head for a second weekly loss in a row of 0.7
percent, but analysts saw that as of minor significance
considering their recent strength.
Instead, focus was mainly on the ailing dollar, which
hovered at an eight-month low against a basket of major
currencies following a 3.5 percent drop during the last three
weeks of political wrangling.
House of Representatives Speaker John Boehner was quoted on
Thursday as saying Washington will make sure it does not default
on its debt, though compromises may be needed.
Hitting the debt ceiling could lead to an unprecedented U.S.
default, an outcome the market assumes is unthinkable.
"By far the biggest risk is October 17. If the debt ceiling
is not raised beyond $17.6 trillion words like default are going
to start rearing their head," said Neil Williams, chief
economist at fund manager Hermes.
"Is the world's biggest economy really going to default on
its debt when the wheels of the Fed's printing presses are still
turning? I highly doubt it."
With the dollar firmly on the back foot, the euro held at
$1.3622, within striking distance of its 2013 peak of
$1.3711 following a week of largely encouraging data.
The U.S. shutdown delayed the closely-watched nonfarm
payrolls data, normally out on Friday and a key factor in
Federal Reserve deliberations on when to scale back its
stimulus. The postponement had no noticeable market impact.
Several Fed officials are due to speak later in the day
after two senior policymakers warned on Thursday of dire
consequences if the country defaulted on its debt. One said the
Fed's monetary policy was being kept ultra-easy to help offset
the harm caused by the wrangling.
In Asian trading, Tokyo's Nikkei ended down 0.94 percent
taking its cue from the U.S. S&P 500, which suffered its
ninth loss in 11 sessions overnight, after the Bank of Japan
maintained its policy stance and pointed to the country's slowly
ITALIAN ASSETS SHINE
Debt markets have remained largely relaxed about the U.S.
tensions, and yields on benchmark U.S. Treasuries
and German Bunds were slightly higher in early
trading after a largely steady week.
Italian bonds extending this week's relief rally after Prime
Minister Enrico Letta's government won a confidence vote in
parliament. Italian shares in Milan also outperformed,
up 0.8 percent versus falls of 0.2 percent in London and
In commodity markets, trading remained choppy. Brent crude
edged up 0.2 percent to around $109.27 a barrel,
reversing a 0.2 percent decline overnight after slower U.S.
service sector growth in September compounded worries about
demand for raw materials.
Gold was steady at $1,316.51 an ounce while copper
prices stabilised at $7,202.25 a tonne after tumbling
1.3 percent on Thursday.