Shares in Europe dip after US debt deal

Shares in Europe have fallen despite news that US politicians have agreed a deal that ends the partial government shutdown and avoids a debt default.

London's FTSE index fell 0.1% while in Germany the Dax index dropped 0.5%.

The falls came despite shares having risen on Wall Street on Wednesday and Japanese stocks increasing in Tokyo.

The deal, just before the deadline to raise the $16.7tn (£10.5tn) limit, will fund the government and extend the debt ceiling until into early next year.

'Sell the news'

Stock markets, accustomed to Washington wrangling after several years of budget brinkmanship, did not react as dramatically during the shutdown as they had during previous budget disputes.

Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels, told Reuters he was not surprised at the immediate share market reaction.

"The deal was widely anticipated. Over the last couple of days, the market had seen some nice gains and now people may take some profits on the announcement of the deal. It is 'buy the rumour, sell the news' thinking."

However, gold reacted sharply to the news, rising more than 2% to $1,309 an ounce.

Gold's move upwards was given a push by a fall in the dollar. The US currency dropped by 0.7% against the pound, with one pound worth $1.6067, and also down 0.7% against the euro, with one euro worth $1.3625.

The political crisis is thought by many to mean that the US central bank. the Federal Reserve, will continue with its ultra-generous monetary policy - quantitative easing - which keeps money cheap for borrowers.

The Fed's policy also means low returns for investors in the dollar, which in theory lessens its attractiveness to investors.

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Media captionTodd Buchholz, former White House advisor: "We'll be back to this once again in a couple of months"

The policy has also provided support for shares.

"You could ask why in the world has the stock market not had a significant slump? The answer is the stock market loves low interest rates," Todd Buchholz, a former economic adviser to the US government, told the BBC.

"The fact the government shutdown has weakened the economy simply means that quantitative easing will continue - and the markets love quantitative easing."

Deadlines moved

The Democratic-controlled Senate's bipartisan compromise proposal was approved by 81 votes to 18, and the deal was then passed by 285-144 in the House of Representatives.

The bill extends the treasury's borrowing authority until 7 February and also funds the government to 15 January.

As well as providing the government with funding, the bill will create a panel of Senate and House members to draw up a longer-term budget agreement.

On Wall Street, the Dow Jones share index closed up 1.4% at 15,374 while the S&P 500 rose 1.4% to 1,721.54.

Japan's Nikkei index ended up 0.8%, but reaction was more muted elsewhere in Asia. Australia's ASX rose 0.3% while in Hong Kong the Hang Seng closed down 0.6%.

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