Markets braced for US shutdown
Global markets are bracing themselves for upheaval as political wrangling in Washington sees the United States inch closer to a shutdown which threatens to slam the brakes on the recovery in the world's largest economy.
The budget deadlock between the White House and Congress, which centres on president Barack Obama's healthcare policy, could see parts of the government close down when the new fiscal year starts at midnight.
Estimates suggest that this would cost America's economy 8 billion US dollars (£5 billion) a week - a prospect causing nervousness among investors around the world.
Even more alarming is the looming threat of a stand-off over the Federal debt ceiling. Failure to agree to a rise in the government's borrowing authority by mid-October would force the US to default on some payment obligations.
Such a scenario would be devastating for the economy and send shockwaves across the globe.
But the immediate prospect of a shutdown is dramatic enough, with 800,000 federal workers likely to be given unpaid leave, though some critical services such as border patrol and air traffic control would continue.
Democrats and Republicans are engaged in a game of blame and counter-blame over the crisis which will continue when Congress sits later today after they failed to come to a compromise over the weekend.
As the parties go eyeball to eyeball in the high-stakes stand-off on Capitol Hill, markets will look closely to see whether one side is about to blink. But little ground has so far been given.
Markets across the world are shuddering at the prospect of the shutdown, with the FTSE 100 down nearly 1% and European exchanges falling slightly further - as a separate political crisis takes hold in Italy.
Michael Hewson, senior market analyst at CMC Markets UK, said: "If investors had been hoping that common sense would prevail over the weekend, in either Italy or the US for that matter, then they would have ended up sorely disappointed."
In the City, it is miners who have borne the brunt of investors' nervousness over the prospect of a hit to the US economy damaging demand for their raw materials.
Mexico's Fresnillo was leading the FTSE 100 fallers, with a share price fall approaching 4%, while Anglo American and Antofagasta were not far behind.
The crisis hinges on Mr Obama's landmark healthcare reforms, due to come into force this week, which are bitterly opposed by Republicans.
Yesterday the House of Representatives, controlled by the president's opponents, passed a measure making government funding dependent on a one-year delay to the healthcare law.
The latest phase of the legislative battle is likely to see the Democrat-controlled Senate reject Republican amendments and send the bill back to the House.
If the bill is not passed before midnight (5am in Britain), non-essential government services will begin closing their doors for the first time since the last shutdown in 1996, when Bill Clinton faced similar hostilities from the US Congress.
Since that crisis, temporary funding bills known as continuing resolutions have been non-controversial, with neither party willing to take the risk of a shutdown to win legislative battles that were otherwise lost.
But the prospect of exchanges opening this week where Americans will be able to shop for health coverage from private insurers under "Obamacare" has convinced the Republicans' ultra-conservative Tea Party wing to take the risk.