Stocks climb while bonds, gold tumble after U.S. shutdown

Tue Oct 1, 2013 2:08pm EDT
 
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By Wanfeng Zhou

NEW YORK (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 would be short-lived.

Congress missed a midnight deadline to agree on a spending bill, resulting in up to 1 million workers being put on unpaid leave. No signs of compromise emerged immediately as the Democratic-controlled Senate formally rejected an offer by House of Representatives Republicans to break the logjam.

Equities had fallen ahead of the shutdown, and some market participants view any pullback as a buying opportunity. Previous shutdowns haven't had much of an impact on portfolios.

MSCI's world equity index .MIWD00000PUS, which tracks shares in 45 countries, rose 0.6 percent to 384.45; it has fallen 1.4 percent since its recent high on September 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 October 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 President Barack Obama's healthcare reforms, as they did with the spending bill.   Continued...

 
A man walks through the lobby of the London Stock Exchange August 5, 2011. REUTERS/Suzanne Plunkett