- US government shutdown continues
- US default risks hurting world, says IMF chief
- Moody's says Italy crisis not over
FTSE 100: 0.14%
CAC 40: 0.54%
FTSE MIB: 1.13%
IBEX 35: 0.56%
Stoxx 600: -0.03%
European stocks were little changed as the US government shutdown entered its fourth day after lawmakers failed to reach a resolution over the federal budget.
Republicans and Democrats have continued to butt heads, prompting the government to come to screeching halt after missing the Monday deadline for the budget deal.
The parties have been wrangling over President Barack Obama's controversial healthcare bill. Republicans are against the bill but the Democrats are refusing to budge.
More concerning is whether Congress will agree to raise the $16.7tn debt limit by the October 17th deadline to prevent the US government defaulting on its obligations.
The Treasury Department said a default could have a "catastrophic effect" on all aspects of the US economy and could lead to "events of the magnitude of late 2008 or worse".
"Not only might the economic consequences of default be profound, those consequences, including high interest rates, reduced investment, higher debt payments, and slow economic growth, could last for more than a generation," the Treasury said.
Markets expect no progress in negotiations on the budget and debt ceiling on Capitol Hill on Friday. However, a development may have been made after a spokesman for House Speaker, John Bohner, indicated that he is willing to be more flexible in order for the US to avoid hitting the debt ceiling and defaulting on its debt.
"The markets are becoming a little more nervous about the prospect of a US default. So far, investors have been relatively calm, with indices only grinding lower," said Craig Erlam, Market Analyst at Alpari.
"If investors saw this as a genuine threat, losses would be much greater. What we're seeing now is investors staying on the sideline, as opposed to selling aggressively, although that could be about to change."
International Monetary Fund (IMF) Managing Director Christine Lagarde on Thursday said the US needs to raise its debt ceiling to avoid damage to the global economy.
In a speech on Thursday ahead of the 2013 World Bank-IMF Annual Meetings, Lagarde warned that the problem with the US debt ceiling is even more crucial than the current government shutdown.
"The government shutdown is bad enough, but failure to raise the debt ceiling would be far worse, and could very seriously damage not only the US economy, but the entire global economy," she said. "So it is 'mission-critical' that this be resolved as soon as possible," the IMF chief insisted.
As a result of the government shutdown, US economic reports have been cancelled this week including jobs data.
Berlusconi faces explusion
A panel of Italy's Senate will on Friday vote on whether to expel centre-right leader Silvio Berlusconi over his conviction for tax fraud.
The former prime minister, who is expected to lose his seat in the Senate, threatened to topple the coalition government over the issue but backed down during a confidence vote on Wednesday.
Berlusconi was convicted of tax fraud in October 2012 over deals his media company Mediaset made to purchase TV rights to US films.
Moody's warned that the political developments over the last few weeks have highlighted the fragility of the Italian government.
The credit rating agency said the political instability continues to be "credit negative" since it could delay fiscal and structural reform.
Tate & Lyle, Home Retail
Tate & Lyle's shares
fell after the sweeteners and food ingredients group said that adjusted operating profits in the second quarter were slightly below last year due to softness in the US beverage sector.
Home Retail rose after UBS raised its rating on the stock to 'buy' from 'neutral'.
Nokian Renkaat declined after the Nordic tyre company said operating profit and net sales will fall this year from 2012.
The euro fell 0.19% to the 1.3593 US dollar.
Brent crude futures were up $0.265 to $109.290 per barrel on the ICE.