Financial markets are taking the first government shutdown in the United States for 17 years in their stride, in the expectation the political standoff will be short-lived, Craigs Investment Partners broker Chris Timms says.
US President Barack Obama and congressional Republicans became no closer yesterday to ending the standoff which has thrown about 800,000 government employees out of work. Mr Obama accused Republicans of taking the Government hostage in order to sabotage his signature healthcare law.
Republicans in the House view the Affordable Care Act as a dangerous extension of government power. The Democratic-controlled Senate has repeatedly rejected Republican efforts to cut government funding.
Mr Timms said investors remained confident a deal could be reached quickly.
The Standard & Poor's 500 index closed up 0.8% and the technology-rich Nasdaq closed up 1.2%.
The impact of the the two back-to-back shutdowns in 1995-96, lasting a total of four weeks, during the Clinton administration, was relatively limited, cutting just 0.25% from the fourth-quarter economic activity, as measured by GDP.
Historically, the market impact has been relatively limited. In the 10 days before the 17 previous shutdowns over 40 years, the S&P had a median performance of -0.3%.
The S&P was down 1% in the past 10 days, suggesting a short-term shutdown might already be reflected in market pricing, he said.
''The standoff has removed some uncertainty. Something has happened. They did nothing but at least the markets now know what they are dealing with.
The markets took a hit earlier in the week, and there has been some bounce back from that.''
The NZX-50 started the day flat but became stronger as the day progressed and the Australian and Asian markets gathered strength, Mr Timms said.
The US Treasury was forced to pay the highest interest rates in about 10 months on its short-term debt as many investors avoided bonds that would be due later this month when the Government was due to exhaust its borrowing capacity.
If Congress could agree to a new funding bill soon, the shutdown would have little impact on the world's largest economy, he said.
A week-long shutdown would slow US economic growth by about 0.3%, according to Goldman Sachs, but a longer disruption could weigh on the economy more heavily as furloughed workers scaled back personal spending.
The 1995-96 shutdown cost taxpayers $US1.4 billion ($NZ1.7 billion), according to congressional researchers.
Failure to raise the Government's $US16.7 trillion debt ceiling would force the country to default on its obligations, dealing a blow to the economy and sending shockwaves around global markets.
A 2011 standoff over the debt ceiling hammered consumer confidence and prompted the first downgrade of the United States' credit rating.
Analysts told Reuters this time it could be worse. Lawmakers back then were fighting over how best to reduce trillion-dollar budget deficits.
This time, they are at loggerheads over an issue that did not lend itself to compromise as easily - an expansion of government-supported health benefits to millions of uninsured Americans.
Republicans had voted more than 40 times to repeal or delay ''Obamacare'' but they failed to block the launch of its online insurance marketplaces on Tuesday.
At a glance
The political crisis raises fresh concerns about whether Congress can meet a crucial mid-October deadline to raise the Government's $US16.7 trillion ($NZ20.3 trillion) debt ceiling. Some Republicans see the vote as another opportunity to undercut US President Barack Obama's healthcare law.
