GLOBAL MARKETS-Stocks head for weekly loss on budget woes; dollar nears lows
* Dollar edges higher, but not far off eight-month low
* Wall Street, Europe shares higher but sentiment fragile
* U.S. new-year CDS hits highest since August, 2011
NEW YORK, Oct 4 (Reuters) - Major stock markets edged higher on Friday but were headed for a second week of losses while the dollar hovered near an eight-month low on fears the budget standoff in Washington will drag on until a crucial deadline to raise the country's debt limit. U.S. shares rose in early trading, although major indexes were on track for a week of steep losses as a partial government shutdown entered its fourth day and appeared likely to drag on for another week or more. While selling has been orderly so far, investors see volatility rising if the shutdown becomes prolonged, which will hurt the economic recovery and fuel fears about the $16.7 trillion U.S. debt ceiling. Treasury Secretary Jack Lew has said the government will hit the limit no later than Oct. 17. The cost of insuring one-year U.S. government bonds against default rose 7 basis points to 58 bps on Friday, hitting the highest level since August 2011, according to Markit. Top international policymakers have warned that a failure to raise the U.S. debt ceiling would be a serious blow to the world economy. "If there's no agreement by the end of next week, the concern will really become greater and the impact will be more pronounced," said Kate Warne, investment strategist at Edward Jones in St. Louis. Warne helps oversee $670 billion in assets. MSCI's world equity index, which tracks shares in 45 countries, edged up 0.2 percent, but was on track for a weekly loss of 0.6 percent. Despite the latest retreat, many long-term investors believe Congress will eventually resolve the budget issues, which would ensure that any stock pullback would be followed by a rebound. "Day by day, people are getting more tense," said Francois Savary, chief investment officer at Swiss firm Reyl. "But we are betting on the fact that a deal will be found, and this should provide us with the opportunity to increase our equity exposure." The Dow Jones industrial average gained 48.16 points, or 0.32 percent, to 15,044.64. The Standard & Poor's 500 Index rose 7.43 points, or 0.44 percent, to 1,686.09. The Nasdaq Composite Index added 23.55 points, or 0.62 percent, to 3,797.89. European shares rose 0.3 percent to 1,246.84 points. Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said the shutdown would hurt growth in the last quarter of this year, while the Bank of Japan said an extended U.S. budget standoff would have a severe global impact. More Fed officials are due to speak later in the day. The debt ceiling issue is considered more severe than the government shutdown as it could result in a default on U.S. debt if no resolution is reached to increase it. On Thursday, the New York Times reported that House Speaker John Boehner told colleagues he would not let the United States default on its debt.
The U.S. shutdown delayed the closely watched nonfarm payrolls data for September, normally due on Friday and a key factor in Federal Reserve deliberations on when to scale back its stimulus. The postponement had no noticeable market impact. The dollar rose for the first time in six days. It gained 0.3 percent to 79.972 against a basket of major currencies. The euro slipped 0.3 percent to $1.3582. The dollar had hit an eight-month low on Thursday on views that the government shutdown will further delay the Fed's plans to scale back stimulus. The benchmark 10-year U.S. Treasury note was down 7/32, its yield at 2.639 percent. Growing worries about a U.S. government default lifted the interest rates on ultra short-term U.S. Treasury bills to their highest levels in over 10 months. Brent crude oil edged toward $110 a barrel as a tropical storm approached the oil-producing regions around the U.S. Gulf, but concerns over a prolonged U.S. government shutdown and reduced tension over Iran kept prices in check. Brent crude rose 30 cents to $109.31. U.S. oil rose 61 cents to $103.92. Gold slipped to $1,306 an ounce from $1,316.69.