Itsuo Inouye, Associated Press
LONDON — The mood in financial markets was cautious Tuesday as U.S. politicians remained at loggerheads over how to solve a budget crisis that has raised fears of a possible U.S. debt default.
The prevailing view is that Congress and the White House will solve their standoff over the budget that has seen the partial shutdown of the government drag into an eighth day, as well as the potentially more important issue of raising the debt ceiling. Asian stocks managed to eke out gains earlier, while the dollar clambered off recent lows against the yen.
In particular, investors want to see progress on the debt ceiling, which the Treasury Department has said has to be raised by Oct. 17. If it's not, the world's largest economy faces the possibility of defaulting on its debts, a move that would send shockwaves around global markets.
"Although most investors believe that a deal will be reached by the deadline, investors are still concerned with the impact their portfolios are likely to take in the meantime," said Shavaz Dhalla, a financial trader at Spreadex.
In Europe, the FTSE 100 index of leading British shares fell 1.1 percent to close at 6,365.83 while Germany's DAX fell 0.4 percent to 8,555.89. The CAC-40 in France shed 0.8 percent to 4,133.53.
In the U.S., stocks remained under pressure following sizeable falls on Monday — the Dow Jones industrial average was down 0.6 percent at 14,854, while the broader S&P 500 index fell 0.7 percent rate to 1,664.39.
The dollar was a little steadier following a run of weak trading sessions. The euro was flat at $1.3579 while the dollar rose 0.2 percent to 96.94 yen. Oil prices also recovered their poise, with the benchmark New York rate up 58 cents at $103.61 a barrel.
The focus will remain on the gridlock in the U.S. especially as much of the U.S. economic data has been postponed amid the government's partial shutdown. The Federal Reserve has said any reduction in its monetary stimulus will be data-dependent.
"Without the data, the Fed can't taper," said Gary Jenkins, managing director of Swordfish Research.
There will be some interest later in the start of the quarterly corporate earnings reporting season later in the day. As usual, aluminum giant Alcoa kicks it off with its results, due after Wall Street closes.
"This will be the company's first earnings announcement since the company lost its place in the Dow but is no less important for its place as a bellwether of commodity demand," said Michael Hewson, senior market analyst at CMC Markets.
Earlier in Asia, Japan's Nikkei index closed up 0.3 percent to 13,894.61, while Hong Kong's Hang Seng index rose 0.9 percent to 23,178.85. China's Shanghai composite, reopening for the first time since closing for public holidays on Oct. 1, climbed 1.1 percent to 2,198.20.