GLOBAL MARKETS-Caution rules as Washington drama drags on
* Stocks and currencies drifting sideways in Asia
* With data lacking, attention focused on US budget impasse
SYDNEY, Sept 26 (Reuters) - Asian share markets were left in limbo on Thursday as a paucity of major economic news left investors with little choice but to sweat out the latest battle over the U.S. budget.
With caution the watchword, MSCI's broadest index of Asia-Pacific shares outside Japan was barely changed, as was Seoul's KOSPI. Japan's Nikkei eased 0.5 percent and Australian shares were down 0.4 percent.
The U.S. dollar was softer on the yen and euro while sovereign bonds benefited from a general air of risk aversion.
With the outlook for U.S. monetary policy up in the air, dealers were reluctantly conceding attention to the budgetary antics going on in Washington.
Congress is currently struggling to pass a spending bill to keep the government funded beyond Oct. 1, but that is just a taster for the fight over raising the debt limit.
U.S. Treasury Secretary Jack Lew warned that the United States would exhaust its borrowing capacity no later than Oct. 17, though analysts reckon it could keep paying its debts to at least the end of the month.
"Between now and Monday evening, we expect Congress to pass a continuing resolution (CR) that funds the government to at least November 15, if not longer," Deutsche Bank economists wrote in a client note.
"If a CR is passed in time, or if the government closes for only a day or so, the probability of a debt ceiling impasse is reduced. Critically, under no circumstance do we expect the Treasury to default on its obligations."
In the past, the U.S. dollar and stocks have tended to weaken ahead of such political showdowns, only to rally once the issue was resolved.
So far markets are following the script with the Dow Jones industrial average down 0.4 percent on Thursday, while the S&P 500 Index faded 0.27 percent. It was the fifth consecutive session of losses for the benchmark S&P 500, the first such period for 2013.
The MSCI world equity index, which tracks shares in 45 countries, was down 0.1 percent.
It is down more than 1 percent from highs reached right after last week's decision by the U.S. Federal Reserve to continue its bond-buying program at a monthly pace of $85 billion.
In counterpoint to the softness in stocks, U.S. Treasuries rallied for the fourth straight session as investors took a "just in case" attitude.
Yields on the benchmark 10-year note dropped to 2.62 percent , making a fall of 23 basis points since the Fed decided to maintain its stimulus.
The slip in yields tugged the U.S. dollar lower against the yen and most European currencies. The dollar drifted off to 98.46 yen, while measured against a basket of currencies it reversed course to 80.356.
The euro firmed to $1.3520, having bounced from a low of $1.3460 on Wednesday. It was aided in part by data showing German consumer confidence at a six-year high heading into October.
In commodity markets, oil prices were pressured by hints of progress between the U.S. and Iran.
Iranian President Hassan Rouhani said in a newspaper interview on Wednesday that he wants to reach a deal with world powers on Tehran's nuclear program in three to six months.
Brent crude for November delivery fell 23 cents to $108.09, while November U.S. crude lost 31 cents to $102.35 a barrel.
Copper futures were off 0.2 percent to $7,182.25 per tonne, while gold held overnight gains at $1,332.49 an ounce.