Market reaction to the debt showdown in Washington

AP News
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Posted: Jul 26, 2011 5:44 PM
Market reaction to the debt showdown in Washington

Here's an overview of how various markets are reacting to the impasse in Washington over raising the U.S. borrowing limit. The U.S. government could default on its debt after Aug. 2 if the limit isn't raised.

_ U.S. Government Bonds: How will you know if big investors like China lose faith in the U.S. government? Bond yields will leap. The main Treasury to watch is the 10-year note. Its yield is a benchmark for rates on mortgages and other kinds of loans throughout the economy. The market has remained calm so far. On Tuesday the yield on the 10-year Treasury note edged down to 2.95 percent from 3 percent late Monday.

_ Gold: Investors are piling into gold on fears of a U.S. default. Unlike many other metals, including silver and copper, there are few commercial uses for gold but it's seen as an asset that is likely to hold its value. That makes it difficult to gauge just how much it's really worth. When gold prices are high, experts say it's a good indicator that people are scared to invest money in other markets. Gold closed above $1,600 for the first time July 18. On Tuesday, gold rose $4.60 to settle at $1,616.80 an ounce.

_ Stocks: Worries about a possible U.S. debt default have been weighing on the market this week. Stocks are seen as riskier than other assets and investors sell when they are worried or uncertain about the economy, among other things. On Tuesday the Dow lost 91.50 points, or 0.7 percent, to close at 12,501.30, its third day of losses.

_ Currencies: When money managers are concerned about the value of the U.S. dollar, they sometimes buy currencies issued by countries that have been more prudent with spending. The bet is that as the U.S. struggles to pay its debts, more investors will put money in these currencies, lifting their value. Singapore dollars, Canadian dollars, Brazilian reals and Australian dollars are among those that investors are buying. On Tuesday, the dollar fell broadly against other currencies.