Fitch places U.S. debt under credit review, downgrade possible

U.S. credit ratings agency Fitch Ratings on Tuesday  placed the U.S. 'AAA' debt on "rating watch negative" due to congressional inability to pass a spending package, which is bringing the country dangerously close to default.

The U.S. is due to hit its debt ceiling on Thursday, after which Washington won't be able to guarantee all of its obligations.

Meanwhile, a government shutdown that began on Oct. 1 continued at the time of writing on Tuesday after U.S. stock markets closed.

"The U.S. authorities have not raised the federal debt ceiling in a timely manner before the Treasury exhausts extraordinary measures. The U.S. Treasury Secretary has said that extraordinary measures will be exhausted by 17 October, leaving cash reserves of just USD30 billion," Fitch said in a statement. 

"Although Fitch continues to believe that the debt ceiling will be raised soon, the political brinkmanship and reduced financing flexibility could increase the risk of a U.S. default."

The dollar wiped out earlier gains on the news.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.07% at 80.54 on Tuesday after spending most of the day in positive territory.

Negotiations among lawmakers to find a way to fund the government and avoid possible defaults hit a snag on Tuesday after the Democratically-controlled Senate said it would stop working on a way out of the impasse until the Republican controlled House comes up with a proposal.

The news sent the dollar falling from gains posted earlier in the session, when both the Senate and the House had prepared roadmaps to end the crisis that were viewed by many as compatible.

The House was due to vote Tuesday evening on Republican-led plans to reopen the federal government and avoid a default, though fears the proposal could come with revisions previously rejected by Democrats frayed nerves and took its toll on the greenback.

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U.S. stocks fall as budget talks hit fresh snag; Dow drops 0.87%

U.S. stocks fell on Tuesday after lawmakers hit a fresh snag in their efforts to approve a spending package needed to reopen the federal government and also steer the country away from possible defaults.

At the close of U.S. trading, the Dow Jones Industrial Average finished down 0.87%, the S&P 500 index fell 0.71%, while the Nasdaq Composite index fell 0.56%.

Negotiations among lawmakers to find a way to fund the government and avoid possible defaults hit a snag on Tuesday after the Democratically-controlled Senate said it would stop working on a way out of the impasse until the Republican controlled House comes up with a new proposal.

The news sent stocks falling by catching investors by surprise, who were upbeat earlier when both the Senate and the House of Representatives prepared roadmaps to end the crisis that were viewed by many as compatible.

While the dollar avoided losses amid sentiments that budget talks have hit a pothole but weren't dead in the water yet, stocks stayed in negative territory, mainly on concerns that House Speak John Boehner will present a new plan with previsions previously rejected by Democrats.

The U.S. is due to hit its debt ceiling on Thursday, after which Washington won't be able to guarantee all of its obligations.

Elsewhere, data released earlier revealed that an index of manufacturing activity in the New York region came in below expectations this month.

The Federal Reserve Bank of New York said that its general business conditions index fell to 1.52 for October from 6.29 in September. Analysts had expected a reading of 7.0.

Leading Dow Jones Industrial Average performers included Microsoft, up 0.17%, Johnson & Johnson, up 0.14%, and Intel, down 0.21%.

The Dow Jones Industrial Average's worst performers included Home Depot, down 1.49%, Procter & Gamble, down 1.40%, and 3M, down 1.31%.

European indices, meanwhile, finished higher.

After the close of European trade, the EURO STOXX 50 rose 0.90%, France's CAC 40 rose 0.78%, while Germany's DAX 30 gained 0.92%. Meanwhile, in the U.K. the FTSE 100 finished up 0.64%.

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Forex - Dollar trims gains but stays up as U.S. fiscal impasse drags on

The dollar traded higher against most major currencies on Tuesday amid ongoing hopes for U.S. policymakers to end a fiscal stalemate that is threatening to throw the world's largest economy into default despite fresh snags that hit lawmakers earlier.

The U.S. is due to hit its debt ceiling on Thursday, after which Washington won't be able to guarantee all of its obligations.

In U.S. trading on Monday, EUR/USD was down 0.31% at 1.35019.

Negotiations among lawmakers to find a way to fund the government and avoid possible defaults hit a snag on Tuesday after the Democratically-controlled Senate said it would stop working on a way out of the impasse until the Republican controlled House comes up with a proposal.

The news sent the dollar falling from gains posted earlier in the session, when both the Senate and the House had prepared roadmaps to end the crisis that were viewed by many as compatible.

The dollar failed to plunge amid sentiments that budget talks have hit a pothole but weren't dead in the water yet, as reports the House was willing to work a new proposal kept the greenback largely higher save for the yen, which has acted as a safe-haven currency during the deadlock that closed the federal government on Oct. 1.

Elsewhere, data released earlier revealed that an index of manufacturing activity in the New York region came in below expectations this month.

The Federal Reserve Bank of New York said that its general business conditions index fell to 1.52 for October from 6.29 in September. Analysts had expected a reading of 7.0.

The single currency failed to advance on news that German economic sentiment improved more than expected in October by rising to the highest level since April 2010.

The ZEW Centre for Economic Research said that its index of German economic sentiment rose by 3.2 points to hit 52.8 in October from September’s reading of 49.6. Analysts had expected an unchanged reading.

The greenback was down against the pound, with GBP/USD up 0.08% at 1.5996.

In the U.K. data on Tuesday showed that consumer price inflation accelerated 2.7% on a year-over-year basis last month, unchanged from August and was 0.4% higher from a month earlier.

The dollar was down against the yen, with USD/JPY down 0.25% at 98.34, and up against the Swiss franc, with USD/CHF up 0.29% at 0.9128.

The dollar was mixed against its cousins in Canada, Australia and New Zealand, with USD/CAD up 0.25% at 1.0378, AUD/USD up 0.26% at 0.9513 and NZD/USD trading up 0.13% at 0.8369.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.25% at 80.58.

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