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Markets muted as investors monitor US debt debate

Published: Wednesday, Sept. 25 2013 12:00 a.m. MDT

A broker works in a trading room of a Portuguese bank in Lisbon, Wednesday, Sept. 18, 2013.  (Francisco Seco, Associated Press) A broker works in a trading room of a Portuguese bank in Lisbon, Wednesday, Sept. 18, 2013. (Francisco Seco, Associated Press)

LONDON — Worries over the ability of U.S. politicians to agree on a deal to raise the country's debt ceiling weighed on markets Wednesday.

The government will reach its borrowing limit, or debt ceiling, by Oct. 1. If Congress doesn't raise that limit, the government won't be able to pay all its bills, possibly shaking confidence in the world's biggest economy.

That leaves just days for the White House and Republican lawmakers, who disagree on spending cuts and other key budget issues, to reach a compromise. Republicans are demanding that any increase must result in expenditure cuts of an equal amount. President Barack Obama is demanding a debt limit increase with no conditions attached.

In 2011, a similar situation roiled markets at a time when Europe's debt crisis was flaring, and prompted Standard & Poor's to strip the U.S. of its triple A credit rating.

"A lack of progress in Congress on the budget for the next fiscal year is continuing to weigh on global equity markets," said Craig Erlam, market analyst at Alpari. "There's clearly little incentive at the moment to buy into a market that will be hammered in the, albeit unlikely, event that Congress fails to pass a budget and raise the debt ceiling."

In Europe, the FTSE 100 index of leading British shares was down 0.5 percent at 6,536 while Germany's DAX fell 0.2 percent to 8,650. The CAC-40 in France was 0.3 percent lower at 4,185.

In the U.S., the Dow Jones industrial was down 0.1 percent at 15,324 while the broader S&P 500 index fell 0.1 percent to 1,696.

The debt ceiling discussions will likely remain the key focus over the rest of the week, though investors will also be monitoring comments from U.S. Federal Reserve officials to see when the central bank will begin to reduce its monetary stimulus.

U.S. economic data over the last couple of days has done little to cement expectations of when the Fed may act.

The latest release, on Wednesday, showed durable goods orders — that is, items expected to last at least three years — increased by only 0.1 percent in August.

Though a marked improvement on the 8.1 percent collapse recorded in the previous month, the data raised concerns that third quarter U.S. economic growth may not be as strong as anticipated. While that may temper expectations of a near-term "tapering" of the Fed's stimulus, it also raises worries over the state of the U.S. economy, a concern for markets in the longer-run.

"We are going to shave our GDP call for Q3 again, unfortunately, to 1.8 percent annualized from 2 percent, before this report," said Jennifer Lee, senior economist at BMO Capital Markets.

Earlier, the mood in Asia was cautious, too, and most stock indexes closed lower. Japan's Nikkei 225 index fell 0.8 percent to close at 14,620.53 while South Korea's Kospi lost 0.5 percent to 1,998.06. Australia's S&P/ASX 200 advanced 0.8 percent to 5,275.90.

Hong Kong's Hang Seng bucked the trend, rising 0.1 percent to 23,209.63 on the heels of data showing improvement in mainland China's economy.

Trading in other financial markets was subdued as well. Among currencies, the euro was up 0.2 percent at $1.3500 while the dollar was steady at 98.70 yen. In the oil markets, the price of benchmark New York crude was up 36 cents at $103.49 a barrel, making up some ground following a string of losses.

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Pamela Sampson in Bangkok contributed to this report.

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