The lack of an expected deal over the weekend to avert a looming U.S. debt default kept world equity markets and the dollar under pressure on Monday, while the yen rose as some investors shifted into safer assets.
Senate Majority Leader Harry Reid and Republican leader Mitch McConnell held talks that Reid on Sunday called ``substantive.'' Reid did not provide details. Though Reid's remarks gave some hope that Congress soon might pass legislation to fund the government and raise its borrowing authority, investors took a less optimistic view.
``Everybody went home last Friday figuring we had a deal in our hand,'' said Brad McMillan, chief investment officer at Commonwealth Financial in Waltham, Massachusetts. ``But then you go through the weekend and the news was pretty much bad.''
Even if a deal gets done, which McMillan said was likely, the stand-off had created ``justifiable anxiety'' and tremendous uncertainty, he said. ``We've done more damage both directly to the economy, through the shutdown, and indirectly through postponing decisions and reintroducing uncertainly in the decision processes than anyone appreciates,'' McMillan said.
MSCI's world equity index fell 0.2 percent, while the FTSE Eurofirst 300 index of leading European shares was little changed, up about 0.04 percent. On Wall Street, the Dow Jones industrial average was down 72.63 points, or 0.48 percent, at 15,164.48. The Standard & Poor's 500 Index was down 8.57 points, or 0.50 percent, at 1,694.63. The Nasdaq Composite Index was down 15.30 points, or 0.40 percent, at 3,776.58.
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.'' The dollar, as it has since the budgetary crisis, bore the brunt of the nervousness, shedding 0.47 percent against the safer option of the yen to trade at around 98.10 yen.
The dollar also slipped 0.55 percent against the Swiss franc at 0.9072 francs, while the euro rose 0.32 percent to $1.3584.
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.
Brent crude dropped almost to $110 a barrel, while copper edged up 0.78 percent to $7,256.25 a ton as strong imports of the metal from top consumer China boosted optimism about the outlook for demand. Brent crude futures fell by $1.14 to $110.14. U.S. oil pared early gains and was down 46 cents at $101.56. U.S. government debt markets were closed because of Columbus Day, a federal holiday.