LONDON (AP) -- Stocks were in retreat Monday as the partial shutdown of the U.S. government entered a seventh day and lawmakers appeared to be making little headway in raising the country's debt ceiling.
The U.S. has to raise its debt ceiling by Oct. 17. If it doesn't, the world's largest economy faces the possibility of defaulting on its debts, a move that would send shockwaves around the global economy and financial markets.
Though most analysts think a deal between Republicans in Congress and the White House to avoid default will be cobbled together in time, investors are fidgety -- uncertainty discourages investors from buying into risky assets, such as stocks.
On Sunday, Republican House of Representatives Speaker John Boehner ruled out a vote on a straightforward bill to raise the government's borrowing authority without concessions from President Barack Obama before the deadline.
"As the partial shutdown of the U.S. government enters week two, there is little sign that the fiscal stalemate in Washington is being broken," said Neil MacKinnon, global macro strategist at VTB Capital. "Investors are on the sidelines until there is greater clarity or a last-minute resolution between the White House and the Republicans ahead of the debt ceiling deadline."
In Europe, the FTSE 100 index of leading British shares was down 0.6% at 6,418, while Germany's DAX fell 0.5% to 8,580. The CAC-40 in France was 0.3% lower at 4,151.
In the U.S., the Dow Jones industrial average was down 0.8% at 14,953 while the broader S&P 500 index fell 0.7% to 1,679.
The focus of attention in financial markets will likely remain on developments in the U.S. capital. Comments from leading participants, such as Boehner and President Barack Obama, could potentially be big market movers.
"Events in Washington are likely to continue to dominate global markets in the week ahead," said Alan Ruskin, an analyst at Deutsche Bank.
The dollar has also been on the defensive amid the budget fallout. It wasn't making much headway Monday, with the euro flat at $1.3565 and the dollar 0.5% lower at 96.87 yen. Oil prices have drifted lower, and the benchmark New York crude rate was down another $1.90 at $101.94 a barrel.
Earlier in Asia, Japan's Nikkei index tumbled by 1.2% to close at 13,853.32. Hong Kong's Hang Seng index dipped 0.7% to 22,973.95. Trading was nearly flat on South Korea's Kospi, which fell 0.1% to 1,994.42. China's markets were closed Monday for a public holiday.