Stocks drop on U.S. government shutdown as yen, Treasuries gain

Stocks slid around the world and gold rallied as the U.S. government shutdown entered a second day and a report showed American employers added fewer jobs than forecast. The dollar fell, while the yen and Treasuries rose.

The MSCI All-Country World Index dropped 0.3% at 2:50 p.m. in New York and the Standard & Poor’s 500 Index slipped 0.3%, paring an earlier drop of as much as 0.9%. Gold and silver jumped more than 2% to lead commodities higher and oil rallied on speculation a pipeline expansion will fuel demand. The 10-year Treasury yield fell three basis points to 2.62%. The dollar weakened versus 11 of 16 major currencies, while the yen rose versus 14. The euro and Italian notes rallied.

Day one of the first shutdown since 1996 ended with no talks scheduled between the White House and Congress, and Treasury Secretary Jacob J. Lew said the U.S. has begun final extraordinary measures that will be exhausted no later than Oct. 17 to avoid breaching its debt limit. The ECB kept its refinancing rate at 0.5%, matching economists’ estimates in a Bloomberg survey.

“It’s all about the lack of progress out of Washington and concerns about the debt ceiling and the government shutdown all being negotiated in one package,” Paul Zemsky, chief investment officer of multi-asset strategies for ING Investment Management, said by phone from New York. His firm oversees $190 billion. “If we fail to reach a debt-ceiling agreement, that could cause a global-type of concern and cause markets to sell off globally.”

Tesco Slides

The S&P 500 erased most of yesterday’s 0.8% gain as consumer-staples, health-care and industrial companies led declines among all 10 of the main industry groups. The benchmark index has declined almost 2.5% after last reaching a record on Sept. 18 when the Federal Reserve refrained from reducing its stimulus program.

Companies that rely on government contracts helped lead losses today, with United Technologies Corp., Lockheed Martin Corp. and Raytheon Co. slipping more than 2%.

Monsanto Co. dropped 1.7% as the world’s largest seed company gave a full-year earnings forecast that trailed analyst estimates. Alcoa Inc. slumped 2.3% after Deutsche Bank AG lowered its rating on the aluminum producer. Global Payments Inc. rallied 11% after boosting its earnings forecast.

Companies increased payrolls by 166,000 in September, figures from ADP Research Institute showed today. The median forecast of 40 economists surveyed by Bloomberg called for an advance of 180,000.

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