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"Things are far from the 'panic stage', but they don't have to be for investors to be spooked by the apparent intractability of the U.S. political deadlock," said Tachibana Securities market analyst Kenichi Hirano.
WASHINGTON - Hundreds of thousands of U.S. government workers came to work Monday without knowing whether they will be needed on Tuesday, as federal agencies faced a devastating shutdown.
Lawmakers in the bitterly divided Congress had only a few hours left to pass a stopgap budget measure and to beat the midnight deadline, but there was little sign of compromise.
President Barack Obama has warned that a freeze in non-essential federal spending could have catastrophic effects on the shaky economic recovery, and cost thousands of jobs.
But Congressional leaders have been unable to wrangle a compromise from feuding clans of lawmakers, arguing instead over who takes the blame for the first shutdown in 17 years.
If the deadline expires without a deal the failure will have a global impact. Oil prices slid and European and Asian shares fell, amid fears for the world's largest economy.
And, at a more domestic level, as the Washington day began staff at federal agencies were warned that their children would not be able to attend government daycare centers Tuesday.
Some members of Congress tried to put a brave face on the impasse with 15 hours left to thrash out an improbable compromise between the Republican-led House and Democratic Senate.
But most observers agreed the moves were dead in the water from the moment Republicans linked budget legislation to a bid to thwart Obama's health care law.