HONG KONG: Asian shares fell on Friday as a budget deadlock in Washington showed no signs of ending, with investors growing nervous that the stalemate could trigger a damaging debt default.
As the stand-off approaches its fourth day, optimism that Republicans and Democrats would find an early solution to the crisis is giving way to fears over the potentially devastating impact of a default on the world economy.
Tokyo fell 0.94 percent, or 132.94 points to 14,024.31, while Sydney closed 0.51 percent, or 26.9 points lower at 5,208.0, and Seoul shed 0.12 percent, or 2.49 points to 1,996.98.
Shanghai was closed for a public holiday.
With both sides unwilling to give ground—Democrats refuse to cede to Republican demands that a budget deal be linked to cuts to President Barack Obama’s healthcare bill—investors are increasingly worried about how long the crisis will drag on.
While there are concerns about the US economy, the major worry is that politicians will not agree on raising the country’s borrowing limit by the October 17 deadline.
Failure to increase the debt limit will see Washington run out of cash, leaving it unable to pay its bills or service its debt obligations.
Obama on Thursday demanded an end to the row, which he described as a reckless “farce,” as he looked to pressure Republicans to climb down.
His comments came after White House talks between Obama and congressional leaders made no progress.
International Monetary Fund chief Christine Lagarde warned that failure to raise the debt ceiling could wreak havoc on the global economy, while the Treasury Department said that a default could be “catastrophic” and could cause a recession as bad as that created by the global financial crisis.
“Creeping worries about the US debt ceiling are starting to unnerve investors,” Mike Jones, a currency strategist at the Bank of New Zealand in Wellington, told Dow Jones Newswires.
Currency traders sold the dollar, sending it down to 97 yen from 97.27 yen in New York City on late Thursday, while the euro rose to $1.3627 from $1.3618. The euro bought 132.20 yen compared with 132.49 yen.
On Wall Street, the Dow slipped 0.90 percent, the S&P 500 also lost 0.90 percent, and the Nasdaq gave up 1.07 percent.
Adding to selling pressure were figures showing growth in the US service sector, a key driver of the economy, slowed in September.