Sensex struggles, rupee hits 63 as US shutdown nears

Indian markets fell on Monday as fears of a US shutdown keep global stock markets nervous. The Sensex was down 118 points to 19,609 while Nifty fell to 5,796, off 36 points.

The rupee also fell, tailing global risk-off sentiment on a potential shutdown of the U.S. government, but was still on course for its best month in a year. The rupee hit 63.03 in early trade versus its Friday close at 62.51/52. "Global markets are worried as the shutdown could trigger a US downgrade," says Andrew Ferris, chief investment advisor at BNP Paribas.

The banking stocks extended their losses as Bank Nifty fell 2.3 percent to 9,672. The banking index fell close to 5.5 percent in the past week. Among the banking stocks, ICICI Bank, IDFC and Bank of Baroda were down nearly 3 percent each.

Asian stock markets came under pressure on Monday as a shutdown of the U.S. government seemed increasingly likely, while the euro had political troubles of its own as the Italian government teetered on the edge of collapse.

Not helping was a surprise downward revision to activity in China's factory sector. While the final HSBC Purchasing Managers' Index (PMI) did edge up to 50.2 in September, that was well down on the preliminary reading of 51.2.

"Weekend political dynamics in the U.S. and Italy are likely to keep markets on the defensive at the start of a busy week for data and policy events," Barclays analysts wrote in a note.

MSCI's broadest index of Asia-Pacific shares outside Japan slid 1.1 percent. Japan's Nikkei fell 1.7 percent and South Korean shares lost 0.6 percent.

Australian shares slid 1.3 percent from five-year highs, their biggest one-day drop since early August.

The losses came as Italian Prime Minister Enrico Letta said he would go before parliament on Wednesday for a confidence vote after ministers in Silvio Berlusconi's centre-right party pulled out of his government at the weekend.

Letta said he wanted to avoid elections under the current widely criticised voting system which he said would produce more stalemate, but it was not clear if an alternative majority could be found.

Meanwhile in Washington, it seemed increasingly unlikely that Republicans and Democrats could reach a deal on funding the government before the fiscal year ends at midnight on Monday.

If so, many government employees will be furloughed and the Labor Department will not issue its monthly employment report scheduled for Friday.

It would also set the stage for a far-more consequential fight to raise the federal government's borrowing authority. Failure to raise the $16.7 trillion debt ceiling by mid-October might force the United States to default on some payment obligations - an event that could cripple the economy and send shockwaves around the globe. (With Reuters inputs)