Global markets remained subdued overnight after United States President Barack Obama's address to the nation on stalemated talks to drag the world's biggest economy back from the brink of defaulting on debt repayments.
The further weakened US dollar underpinned large gains in currencies around the world, including the Swiss franc, the Japanese yen, the euro, the Australian and Canadian dollars and the New Zealand dollar. The kiwi rose to an intraday high of US87.61c, and then drifted lower, closing at US87.52c at 5pm, up 0.57c from Tuesday.
Bourses in the US, the United Kingdom and Europe all closed down, while the major markets in Asia and Australia posted slight gains on positive company earnings, but below 1%.
In New York, the blue-chip Dow Jones industrial average fell 0.72%, the Standard & Poor's 500 Index was down 0.4%, and the Nasdaq Composite Index was down 0.1%, on light volumes as investors shied away from decision-making.
Just 6.53 billion shares changed hands on the New York Stock Exchange, NYSE Amex and the Nasdaq, well below the daily average of 7.49 billion.
While Mr Obama painted a bleak picture of the financial and social turmoil ahead for Americans if his Democrats and the Republicans could not forge a workable legislative pact to raising the US' debt cap, the lack of a definitive solution in the face of an impending August 2 deadline left investors in the dark.
Craigs Investment Partners broker Chris Timms said European stocks were "knocked lower by a raft of disappointing earnings", while rising yields in the respective Spanish and Italian debt auctions reignited investors' concerns about the euro zone sovereign debt crisis.
Forsyth Barr broker Suzanne Kinnaird said the decline in European markets was led by hard-hit banking stocks, but gains by defensive stocks, such as telecoms and utilities, limited the overall retreat.
Both brokers noted the CBOE Volatility Index, Wall Street's gauge of investor anxiety, rose 4.6% and broke above a 20 reading, US analysts saying the index could be pricing in a US debt downgrade.
Among investors, retail clients appeared more anxious than institutional clients about the failure of lawmakers to reach a deal on the debt ceiling, said Charles Lieberman, chief investment officer of Advisers Capital Management, LLC in New Jersey.
"Retail investors I think are more easily scared, and they expressed concern," he said.
"When we discussed the various options with them, they typically come to the conclusion there isn't a whole lot we can do to deal with the circumstances. Anything we can do could backfire."
- Additional reporting by Reuters
