GLOBAL MARKETS-Stocks shrug off U.S. shutdown; gold, bonds fall
(Updates to New York stock market close)
* Investors bet that shutdown will be short
* Dollar nears 8-month low vs major currencies
* Weak Treasury bill auction sign of U.S. debt ceiling
* Gold falls 3 pct as investors liquidate positions
By Wanfeng Zhou
NEW YORK, Oct 1 (Reuters) - Stock markets worldwide climbed
on Tuesday while safe-haven gold and Treasury bonds fell as
investors largely shrugged off the first partial shutdown of the
U.S. government in 17 years on bets that it will be short-lived.
Congress missed a midnight deadline to agree on a spending
bill, resulting in up to 1 million federal workers being put on
unpaid leave. The White House rejected a Republican plan to
reopen portions of the U.S. government, offering no sign of an
end to the bipartisan fight centered on President Barack Obama's
Equities had fallen ahead of the shutdown, and some market
participants view any pullback as a buying opportunity. Previous
shutdowns have not had much of an impact on portfolios.
MSCI's world equity index, which tracks
shares in 45 countries, rose 0.6 percent to 384.31; it has
fallen 1.5 percent since its recent high on Sept. 19.
"If this is short like most of them have been, it won't
really change much as far as the fundamentals. Thus we are still
pretty bullish on U.S. stocks," said Mike Serio, regional chief
investment officer for Wells Fargo Private Bank in Denver.
"However, if this does go on for a long time, we may have to go
back and revisit our GDP growth number at some point."
The picture becomes cloudier as the United States approaches
Oct. 17, when the country hits its $16.7 trillion borrowing
limit that will force legislators to pass a bill increasing the
federal government's borrowing authority. Failure to do so would
technically cause a default. A similar fight that resulted in a
late agreement in 2011 ended up sparking a credit rating
downgrade and a 19 percent selloff in U.S. stocks.
Concern about the possibility of a default was seen after
Tuesday morning's weak auction of four-week Treasury bills,
which sold at their highest rate in 10 months. These bills
mature after the debt ceiling would be breached, so the 0.12
percent rate is suggestive of worries.
Some Republicans have vowed to make raising the debt limit
conditioned on defunding Obama's healthcare reforms, as they did
with the spending bill.
"This is going to be much more important because a failure
to extend the debt ceiling would stop coupon payments on bonds,
creating a technical default that would cause a riot in bond
markets," said Richard Lewis, head of global equities at
Fidelity Worldwide Investment.
The Dow Jones industrial average gained 62.03 points,
or 0.41 percent, to end at 15,191.70. The Standard & Poor's 500
Index rose 13.45 points, or 0.80 percent, to 1,695.00.
The Nasdaq Composite Index gained 46.50 points, or 1.23
percent, to 3,817.98.
A review by Bank of America-Merrill Lynch of 17
government shutdowns since 1976 showed that in the month prior
to a government shutdown, the stock market gained 0.1 percent.
During a shutdown it dipped 0.8 percent, and then bounced,
gaining about 1.1 percent in the month following a shutdown.
BofA-Merrill strategists see any significant decline as a
buying opportunity, though they cautioned that a protracted
fight over the debt limit could add more short-term risk.
The benchmark 10-year U.S. Treasury note fell 8/32 in price,
yielding 2.643 percent as traders reduced their
safe-haven bond holdings after recent rallies.
Gold slid below $1,300 per ounce to its lowest level since
early August, unwinding much of the gain built up before the
shutdown. Spot gold fell to $1,289 an ounce from
Fitch Ratings reiterated on Tuesday that a partial shutdown
of the U.S. government is not itself a trigger for downgrading
its AAA sovereign credit rating, but it does undermine
confidence in the budget process and raises concerns over
whether the debt ceiling will be raised to meet U.S. financial
If the debt ceiling is not raised in time, Fitch said a
formal review of the AAA rating "with potentially negative
implications" would be triggered, even though it believes U.S.
Treasury securities will be honored in full and on time.
The dollar slipped on concern the shutdown would further
delay the U.S. Federal Reserve's plans to start scaling back its
monetary stimulus. The dollar fell to a near eight-month low
against a basket of six currencies and hit a 1-1/2-year
low against the safe-haven Swiss franc.
The dollar pared losses after data showed the U.S.
manufacturing sector last month expanded at its fastest pace in
almost 2-1/2 years.
"We do not know how long this impasse in the U.S. will last.
If it persists, there is a chance it will hurt economic growth
and affect chances of Fed tapering," said Daragh Maher,
strategist at HSBC. "In the short term, it's better to avoid the
The release of the government's report on construction
spending in August, which had been scheduled for 10 a.m, was
delayed because of the shutdown. If no deal is reached by
Friday, the closely watched monthly payrolls report will also be
Oil prices edged lower on concern that a shutdown of the
U.S. government will crimp demand. Brent crude fell 43
cents to settle at $107.94 a barrel. U.S. crude lost 29
cents to settle at $102.04 a barrel.
Europe's broad FTSEurofirst 300 index gained 0.7
percent to close at 1,255.97.
(Additional reporting by Ryan Vlastelica, Chuck Mikolajczak and
Richard Leong in New York and Richard Hubbard in London; Editing
by Nick Zieminski, Dan Grebler and Leslie Adler)
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