U.S. worries keep tone cautious

(Reuters) - World shares dipped for a fourth straight day on Wednesday and the dollar struggled as worries over a possible government shutdown in Washington and mixed signals on U.S. monetary policy kept investors in a cautious mood.

In the U.S. lawmakers are racing to approve legislation to keep most government offices running at the end of this month when budgets are due to expire, but have yet to find common ground.

 

 

Investors, wrong-footed by last week's shock decision by the Federal Reserve not to trim its bond-buying stimulus, are in flux over the central bank's next steps and what mixed signals from policymakers say about the real strength of the economy.

"We're not seeing a post-Fed party as perhaps the market was initially expecting and that's causing some safe-haven flows," said Simon Smith, chief economist at FXPro.

The MSCI world equity index .MIWD00000PUS, which tracks shares in 45 countries, was around 0.1 percent lower and has lost about one percent from the highs reached in the sharp rally which initially followed last week's Fed decision.

European shares joined in the global share market retreat edging down 0.1 percent in early trading, mirroring losses in U.S. and Asian equity markets.

The dollar eased 0.1 percent to 98.63 yen from late U.S. trade on Tuesday and was down about 0.7 percent so far this week while the euro traded at around $1.3474, little changed and down 0.4 percent so far this week.

The single currency showed little reaction to data on German consumer confidence which was at a six-year high heading into October.

The data backed up Tuesday's Ifo business morale survey in pointing to a steady recovery in the euro zone's biggest economy though recent weak industrial production numbers and a drop in exports have combined to leave a mixed picture overall.

Ten-year cash German yields fell 1 basis point to 1.79 percent, supported by comments from European Central Bank officials this week that it stood ready to pump another round of money into banking markets if need be.

On commodity markets, steady buying from top consumer China pushed copper futures up 0.4 percent to $7,176.50, putting them on track to snap a three-session losing streak fueled partly by the uncertainty over the Fed's policy outlook.

Gold rose 0.1 percent to $1,324.30 an ounce, extending some of Tuesday's gains which had followed three sessions of losses.

Oil prices firmed against a backdrop of hopeful signals that longstanding tensions in the Middle East could be easing.

U.S. President Barack Obama on Tuesday cautiously embraced overtures from Iran's new president as the basis for a possible nuclear deal, but a failed effort to arrange a simple handshake between the two leaders underscored entrenched distrust that will be hard to overcome.

"There are some hopes there might be a gradual forging of relationship between the west and Iran, though it's still very early days," said Ric Spooner, chief market analyst at CMC Markets in Sydney.
Front-month Brent crude for November delivery rose about 0.4 percent to $109.09, while November U.S. crude added 0.5 percent to $103.62 a barrel.