Dollar steady ahead of U.S. govt shutdown deadline

By Dominic Lau

TOKYO (Reuters) - The dollar held steady on Tuesday as investors waited with bated breath as a partial U.S. government shutdown appeared inevitable with less than a half-hour to go before midnight in Washington, a move which could crimp growth and dampen consumer confidence in the world's largest economy.

The U.S. government was on the edge of a shutdown over Republican efforts to delay President Barack Obama's healt care programme using a temporary spending bill even as efforts emerged to try to negotiate a deal.

S&P stock futures inched up 0.2 percent after the cash index fell 0.6 percent on Monday, while U.S. Treasury futures slipped 4-1/2 ticks.

As many as one million U.S. federal employees could face unpaid furloughs, but a shutdown would be unlikely to affect the United States's sovereign credit rating.

Investors are accustomed to political battles in Washington resulting in a last-minute accord and voiced scepticism any shutdown would last for an extended period.

"It may have a knock-on effect on the timing of the potential tapering (by the Federal Reserve). It could have a knock-on effect on the production of economic data. It could have a real impact on consumption if it lasts for more than a day," said a senior trader at a foreign bank in Tokyo.

"People in the market are kind of interpreting this as a kabuki drama if you like, but we are little more concerned than that."

While a government shutdown now seemed inevitable, some House Republicans were predicting that their leaders eventually will relent and allow a straight-forward extensions of federal funding without add-ons, such as changes to Obamacare.

The dollar stood at 98.23 yen, having climbed off a one-month low of 97.50 on Monday as Japan's Prime Minister Shinzo Abe was expected to announce his economic growth and tax strategy later on Tuesday.

Japanese manufacturers' sentiment improved sharply in the three months to September to a near six-year high, a closely-watched central bank survey showed on Tuesday, cementing the case for Abe to proceed with a planned sales tax increase next year.

"This is very constructive in terms of the assessment of the current economic situation. There is no reason that Prime Minister Abe should stop raising the (sales) tax," said Masamichi Adachi, senior economist at JPMorgan in Tokyo.

Japan's Nikkei share average <.N225> climbed 1.2 percent in the morning session.

U.S. Federal deficit & debt: http://link.reuters.com/nar43v

U.S. public debt ceiling: http://link.reuters.com/qet25t

MSCI's broadest index of Asia-Pacific shares outside Japan advanced 0.2 percent, though it was still not too far awat from a two-week low after it slid 1.5 percent in the previous session. Regional trading activity was expected to be light with China and Hong Kong closed for National Day holiday.

China's manufacturing growth edged up only slightly last month with the official Purchasing Managers' Index rising to 51.1 from August's 51.0, but below expectations and adding to worries that its economy recovery has foundered.

In the commodity markets, gold edged up 0.1 percent to just below $1,329 an ounce after gaining 7.6 percent in July-September, reversing three straight quarters of decline.

Brent crude dipped 0.4 percent to around $108 a barrel after gaining 6 percent in the third quarter, also ending a three-quarter losing streak.

(Additional reporting by Ian Chua in Sydney; Editing by Eric Meijer)