Global Markets: Asian shares slide as anxieties show over US budget impasse
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Asian shares slid on Friday after a Republican proposal to fend off a U.S. fiscal crunch failed to get enough support, deepening uncertainty over prospects for the negotiations to avert automatic spending cuts and tax increases set to start in January.
"Markets disliked signs of further delay in talks, with the risk that a deal may not be reached by the end of the year deadline," said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo. "It clearly hit risk sentiment."
The U.S. House of Representatives will adjourn until after Christmas, Republican Representative Peter Roskam said on Thursday, after House Speaker John Boehner's proposed tax bill designed to avert the fiscal cliff failed to pass.
U.S. stock index futures fell sharply.
S&P 500 stock futures slipped 1.7 percent, while Dow Jones stock futures and Nasdaq futures both lost 1.5 percent.
That sparked selling in Asian shares, with MSCI's broadest index of Asia-Pacific shares outside Japan wiping out earlier gains to tumble 0.7 percent. Boehner's proposal was aimed at extracting concessions from the White House, which had threatened to veto it, and advance talks closer to a deal.
The Republican-led U.S. House of Representatives, which abruptly recessed on late Thursday, may return as soon as Dec. 27 with a yet-to-be-decided new plan, said a senior party aide.
"This is a major setback for a Fiscal Deal compromise between the two parties. I would say that chances of a deal are down to maybe 40 percent from 65 percent – despite the dysfunction in Washington D.C," said Douglas A. Kass, founder of hedge fund Seabreeze Partners Management Inc.
Risk assets were sold off, from shares, oil to currencies such as the Australian dollar and the euro, while the yen firmed slightly, though it was pinned near multi-month lows versus the dollar and the euro on expectations for more aggressive Bank of Japan easing next year to drive the economy out of deflation.
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