World stocks weighed down by US debt concerns

HONG KONG (AP) — World stock markets wallowed Wednesday as the U.S. government edged closer to defaulting after lawmakers in the world’s biggest economy failed to make significant progress on raising its borrowing limit.

Oil dropped to near $99 a barrel. The dollar weakened against the yen but strengthened against the euro.

U.S. Republican leaders had promised a vote on Wednesday in the House of Representatives on a plan to increase the $14.3 trillion debt limit and avoid America’s first-ever default. But the vote was put off until at least Thursday.

Investors are concerned that time is running out to break the deadlock over raising the borrowing limit as the Aug. 2 deadline looms. If a deal is not reached by then, the government won’t have enough cash to pay all its bills and could default on its debt.

Currently, about 40 cents of every dollar spent by the U.S. government is borrowed. Lawmakers are divided over how to get the U.S. government accounts into a healthier state in the longer term.

Even if a deal is reached, there are fears the U.S. could still lose its top credit rating. A downgrade would cost the federal government an extra $100 billion in interest payments a year.

“I expect continued volatility with uncertainty looming above in the clouds ... until a solid resolution has been agreed with both Democrats and Republicans,” said Sam Le Cornu, a portfolio manager of Asian equities at Macquarie Funds Group.

“There’s just a lot of uncertainty that surrounds equity markets at the moment,” he said.

In early European trading, the FTSE 100 index of leading British shares was down 0.4 percent at 5,903.80 while Germany’s DAX fell 0.5 percent to 7,313.46. The CAC-40 in France was 0.7 percent lower at 3,760.27.

U.S. stocks were poised to open flat. Dow futures were nearly unchanged at 12,434 while broader S&P 500 futures were down less than 0.1 percent to 1,325.40.

Earlier in Asia, stock markets drifted aimlessly as investors seemed uncertain about how to proceed as the U.S. debt impasses drags on.

Japan’s Nikkei 225 stock average fell 0.5 percent to close at 10,047.19 and Australia’s S&P/ASX 200 dropped 0.8 percent to end at 4,537.40.

South Korea’s Kospi edged up 0.3 percent to finish at 2,174.31 after the country’s central bank said economic growth slowed in the second quarter and mobile phone and flat-screen TV maker LG Electronics reported that second-quarter net profit plunged.

Hong Kong’s Hang Seng Index fell 0.1 percent to close at 22,541.69 after flip-flopping between positive and negative territory in morning trading.

Benchmarks in Singapore and Taiwan rose while those in India and New Zealand retreated.

Chinese shares gained strongly as investors snapped up bargains two days after a sell-off led by railway shares following a deadly train crash in the country’s east.

The Shanghai Composite Index gained 0.8 percent to close at 2,723.49 and the smaller Shenzhen Composite Index gained 1.7 percent to end at 1,190.83. Shares in nonferrous and biotech companies led the gains while financial stocks weakened.

In currencies, the dollar weakened slightly to 77.70 yen from 77.88 late Tuesday in New York. The euro rose to $1.4489 from $1.4518. On Tuesday, the euro rose above $1.45 for the first time since July 5, while the dollar fell below 78 yen for the first time since mid-March. The Australian and New Zealand dollars and Thai baht have also strengthened against the dollar.

Oil prices dropped to near $99 a barrel after a report showed U.S. crude supplies unexpectedly jumped last week, suggesting demand may be weakening.

Benchmark oil for September delivery was down 53 cents to $99.06 a barrel in electronic trading on the New York Mercantile Exchange. Crude rose 39 cents to settle at $99.59 on Tuesday.

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Associated Press Writer Alex Kennedy in Singapore and researcher Fu Ting in Shanghai contributed to this report.

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