Markets Turn Lower as Stalemate Endures

Global investors sold stocks on Wednesday as the shutdown of the American government continued into a second day.

While the gridlock in Washington showed few signs of resolution, developments in Italy suggest that a political crisis may be averted, and hopes that Italy’s government will win a confidence vote pushed stocks on the Milan exchange higher.

In the United States, the shutdown, which has seen some 800,000 federal employees put on furlough, went into effect after a politically divided Congress failed to approve short-term funding to keep the government functioning past Monday, the end of its fiscal year.

Though most analysts said they expect the budget stalemate to be resolved before it inflicts damage on the economy, it has raised concerns over whether Congress will be able to increase the country’s debt ceiling later this month. If it doesn’t, the United States would face a potential default, a development that could inflict massive damage on the global economy.

“Let’s just hope that this standoff makes Congress wake up and smell the coffee,” said Dennis de Jong, general manager at UFX Markets. “The shutdown is far from ideal, but failure to raise the government’s $16.7 trillion debt ceiling later this month would be disastrous for the world economy.”

Those concerns were dominating stock markets after what had been a fairly benign response on Tuesday to the gridlock in the United States.

In Asia, markets closed mixed, with the Nikkei 225 index down 2.2 percent in Japan but the major stock indexes in China moving ahead.

European stocks — except in Italy — were generally down. The FTSE 100 in Britain was off 0.8 percent in midday trading, and the DAX in Germany lost 0.5 percent.

Outperforming all others in Europe was Milan’s FTSE MIB, which was trading 1.1 percent higher amid signs that Premier Enrico Letta’s government would survive a confidence vote. Italy was dragged into a potential crisis this week when Silvio Berlusconi demanded his five Cabinet ministers quit the coalition headed by Mr. Letta.

“Letta’s government looks to be on a far sounder footing following extensive behind-the-scenes discussions,” said Alastair McCaig, market analyst at IG.

On Wall Street, the focus will remain on developments in Washington. However, the monthly private payrolls figures from the firm ADP will be monitored, especially as the government’s official nonfarm payrolls report is unlikely to be published Friday because of the shutdown.

Wall Street was headed for a lower opening, with futures of the Dow Jones industrial average and the Standard & Poor’s 500-stock index both 0.6 percent lower. The indexes ended solidly higher on Tuesday.

The dollar remained under pressure too, with the euro up a further 0.1 percent at $1.3532 and the dollar off 0.5 percent to 97.52 yen.