Stocks drift as traders eye US budget battle

AP and AFP

LONDON/HONG KONG–World stocks mostly drifted lower on Friday as investors worried that U.S. politicians might not agree on a budget needed to avoid a shutdown of the government.

The government will reach its borrowing limit, or debt ceiling, on Tuesday. If Congress doesn’t raise that limit, the government won’t be able to pay all its bills and some 800,000 of the 2.1 million federal employees will not go to work.

The White House and Republican lawmakers still disagree sharply on spending cuts and other key budget issues. The Senate plans to vote Friday on measure to prevent an immediate shutdown next week, but a lasting solution still seems far off.

“Tension will increase on the U.S. fiscal front as we approach the deadline of potential government shutdown and will likely act as a drag on sentiment,” said Gary Yau, analyst at Credit Agricole CIB.

In early European trading, the FTSE 100 index of leading British companies dropped 0.9 percent to 6,508.05 while Germany’s DAX retreated 0.3 percent to 8,634.12. France’s CAC 40 dipped 0.3 percent to 4,174.79.

U.S stocks were poised to fall. Dow futures were down 0.3 percent to 15,212 while the broader S&P 500’s futures shed 0.4 percent to 1,685.50.

U.S. investors were cheered by data from the Labor Department showing new claims for unemployment benefits sank by 5,000 to 305,000 last week, beating forecasts of a rise to 325,000. And while pending home sales fell 1.6 percent last month, it was better than the 2.3 percent fall expected. The gains came despite growing tensions on Capitol Hill, where Republicans and Democrats are locked in yet another stand-off over government funding as the Monday night deadline approaches. With Democrats refusing to agree to Republican demands that President Barack Obama’s healthcare bill be cut back there are fears that hundreds of thousands of U.S. state employees will be sent home from Tuesday. More critical, though, is a looming row over the U.S. debt ceiling, which must be raised before mid-Oct., when the government runs out of money to pay its bills. If the spending limit is not hiked, Washington would be unable to service its debt obligations and in turn default. A similar stand-off in 2011 sent global markets sliding and led to a historic downgrade of the country’s AAA sovereign rating by Standard & Poor’s. Asian markets mostly rose on Friday following a bounce on Wall Street that was fuelled by better-than-forecast U.S. jobs data. However, trading is tentative as U.S. lawmakers remain unable to reach agreement over a budget just days before a deadline kicks in that could see parts of the federal government shut down. Tokyo fell 0.26 percent, or 39.05 points, to 14,760.07 but Hong Kong rose 0.35 percent, or 82.01 points, to 23,207.04. Sydney added 0.24 percent, or 12.6 points, to 5,307.1, while Seoul closed 0.22 percent higher, adding 4.48 points to 2,011.80. Shanghai rose 0.20 percent, or 4.29 points, to 2,160.03. Gold cost US$1,324.60 at 1045 GMT compared with US$1,335.92 on Thursday.