Wall Street stocks slipped on Tuesday as traders looked for signs of a breakthrough to the impasse in Washington over the US debt ceiling.

The benchmark S&P 500 fell 0.6 per cent, reversing its gains from the previous session. Technology stocks were the only sector that recorded gains, and the tech-dominated Nasdaq Composite dipped a more modest 0.2 per cent.

Trading on Tuesday was overshadowed by concerns US President Joe Biden and Republican House Speaker Kevin McCarthy would fail to arrive at a deal to increase the nation’s spending limit by the end of Tuesday’s meeting. The meeting ended after the market close on Tuesday with no deal. The US could default on its debt as early as next month if lawmakers fail to reach a compromise.

Government bonds also came under pressure, with the yield on interest rate-sensitive two-year Treasury notes rising 0.07 percentage points to 4.07 per cent. The yield on the benchmark 10-year note was up 0.03 percentage points at 3.54 per cent. Bond yields rise when prices fall.

However, yields on the shortest-term bills that mature next month — at about the date the government could run out of money — fell back slightly after hitting their highest levels since before the 2008 financial crisis earlier in the week.

“It’s clear that investors are still nervous about the issue,” said Deutsche Bank strategist Jim Reid. “That’s a big kink at the front of the yield curve, centred around the one-month mark, which is when fears of a potential default are at their highest.”

The dollar index, which tracks the currency against a basket of six peers, gained 0.2 per cent.

In Europe, the region-wide Stoxx 600 closed down 0.4 per cent, while Germany’s Dax index lost 0.1 per cent and France’s CAC 40 shed 0.2 per cent.

The moves came after Germany’s Zew indicator — a gauge of economic sentiment for the eurozone’s largest economy — plummeted from 4.1 to minus 10.7 in the month to May, its lowest level this year. The reading was well below the forecast of economists polled by Reuters.

“It seems as if investors in Europe are following the paradoxical pattern that bad news on the economy is good news on rates as it would stop the European Central Bank [raising rates],” said Carsten Brzeski, global head of macro at ING.

Asian equity markets were subdued, with China’s CSI 300 index posting a 0.5 per cent fall after official data showed the world’s second-largest economy was failing to regain momentum, despite its reopening after a lengthy Covid-19 shutdown.

Hong Kong’s Hang Seng was flat, while Japan’s Topix gained 0.6 per cent and climbed to its highest level in almost 33 years as improvements in corporate governance make Tokyo more attractive to foreign investors.

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