Asian shares mixed as US debt deadline approaches

PHOTO: Asian shares mixed as US debt deadline approaches

HONG KONG - Asian markets were mixed on Thursday as traders nervously await signs of progress in solving a budget stand-off in Washington that threatens to plunge the US into default.

President Barack Obama said he will meet leaders of the Republicans and Democrats to try to break the deadlock, which has shut the government down for 10 days and could continue past a deadline to raise the country's borrowing limit.

The dollar also got a boost after Obama formally picked fiscal dove Janet Yellen as his nomination to take over from Ben Bernanke as head of the Federal Reserve.

Tokyo rose 0.84 per cent, Hong Kong added 0.16 per cent Seoul was 0.18 per cent higher, Sydney lost 0.20 per cent and Shanghai was off 0.11 per cent. Taipei was closed for a public holiday.

Markets are growing jittery that the Capitol Hill row shows no sign of ending as Republicans demand cuts to Obama's flagship health law before they agree to a new budget and a hike in the debt ceiling.

However, there was some small hope that a deal might be found as Obama said he would meet both parties at the White House after saying he was open to a short-term hike in the ceiling so that substantive talks on the budget could be held.

"The signs emanating from Washington are slightly more positive for equity sentiment," Hiroichi Nishi of SMBC Nikko Securities said.

"Talk of a short-term increase in the debt limit to allow time for broader budget negotiations is seen as a first step to ending the deadlock," Nishi said.

"But with only a week to go now (until October 17 default), there isn't a great deal of time," he added.

Failure to lift the borrowing limit would mean the government runs out of money to pay its bills and service its debts, leading to a default that analysts say will have devastating consequences.

In a warning for Congress to get its act together before an October 17 deadline the Organisation for Economic Co-operation and Development said the paralysis was "needlessly putting at risk the stability and growth not only of the US but also the world economy".

Despite the Washington crisis dealers took some heart from Obama's choice of Yellen as the next Fed chief, which had a positive impact on the dollar.

"While the selection of Yellen, a known policy dove, would generally be seen as negative for the dollar, an active Federal Reserve could be seen as positive for an economy that could become increasingly vulnerable to fiscal headwinds from a chaotic backdrop in Washington," said Omer Esiner, chief market analyst at Commonwealth Forex Exchange.

In early Tokyo trade the dollar bought 97.51 yen (S$1.25) compared with 97.37 yen . The euro sat at $1.3503 compared with $1.3523 while it also fetched 131.90 yen, against 131.74 yen.

On Wall Street the Dow rose 0.18 per cent, while the S&P 500 edged up 0.06 per cent but the Nasdaq fell 0.46 per cent.

Investors were also poring over the minutes of the Fed's most recent policy meeting that ended with the surprise decision not to start winding down its stimulus programme.

The minutes showed the bank was close to a taper of the $85 billion a month bond-buying but felt the economy still needed some support. However, it did say the consensus was in line with an end to the scheme by the middle of next year.

On oil markets New York's main contract, West Texas Intermediate for delivery in November was down four cents to $101.57 while Brent North Sea crude for November eased four cents to $109.02.

Gold cost $1,304.90 at 0220 GMT compared with $1,311.10 on Wednesday.