World stocks flat as U.S. faces budget battle

BANGKOK Uncertainty about the U.S. Federal Reserve's next step and the potential for a budget showdown in Washington kept stock markets in check Tuesday.

Investors initially celebrated when the U.S. Federal Reserve said last week it would refrain from cutting back its massive economic stimulus program. The $85 billion in monthly asset purchases by the Fed helped pump life into the economy and stock markets, but enthusiasm has waned as the reasoning behind the decision -- that the U.S. economy is still weak -- began to sink in.

Still, the central bank is still expected to scale back its purchases at one of its upcoming meetings -- in late October, in mid-December or sometime early next year, so "tapering" isn't off the table.

"That is still hanging over markets. If they had tapered, people would have moved on from there," said Daniel Martin of Capital Economics in Singapore. "Investors have to factor in the Fed doing this all over again."

Evan Lucas, market strategist at IG in Melbourne, Australia, said rallies across the globe, including record highs on Wall Street, have left markets struggling to find a reason to head higher.

"The run has been well supported and the more steam it has gathered the more it has sucked in funds from underperforming sources such as money markets and bond markets," Lucas said in an email commentary.

European stocks rose in early trading. Britain's FTSE 100 rose less 0.1 percent to 6,561.98. Germany's DAX advanced nearly 0.2 percent to 8,649.49. France's CAC-40 added 0.4 percent to 4,186.97.

Wall Street futures were mixed. Dow Jones industrial futures rose marginally to 15,331 but S&P 500 futures fell slightly to 1,692.20.

Asian stocks were mostly lower. Japan's Nikkei 225 fell 0.1 percent to close at 14,732.61. Hong Kong's Hang Seng dropped 0.8 percent to 23,179.04. Australia's S&P/ASX 200 shed 0.4 percent to 5,234.20. South Korea's Kospi fell 0.1 percent to 2,007.10.

Benchmarks in mainland China were mixed. The Philippines and Indonesia fell. New Zealand rose.

The approaching budget battle between the White House and Republican lawmakers also threw an element of uncertainty at markets. The government will reach its borrowing limit, or debt ceiling, by Oct. 1. If Congress doesn't raise that limit, the government won't be able to pay all its bills.

Republicans are demanding that any increase must result in expenditure cuts of an equal amount. President Barack Obama is demanding a debt limit increase with no conditions attached.

The Dow Jones industrial average fell 0.3 percent to close at 15,401.38. The Standard & Poor's 500 fell 0.5 percent to 1,701.84. The Nasdaq composite fell 0.3 percent, to 3,765.29.

Benchmark oil for November delivery was down 46 cents to $103.13 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.16 to close at $103.59 a barrel on the Nymex on Monday.

In currencies, the euro was little changed at $1.3493 from late Monday. The dollar rose to 99.05 yen from 98.78 yen.