Dollar hit by budget deadlock

New York (Bloomberg) - The dollar weakened yesterday against major currencies on worries that political deadlock in budget negotiations could hit the US government's fund-raising programme. Treasury officials warned that the US could be forced to default on its debts as soon as this month unless the government can press ahead with its note auctions.

The delay on note auctions follows a refusal by the Republicans in Congress to raise the debt ceiling, as a bargaining lever to force President Clinton to bow to their plans for balancing the federal budget within seven years.

The dollar closed in London at DM1.41, against 1.4160 late on Friday in New York. The London close against the yen was Y102.9, down on 103.90 late on Friday in New York.

The Treasury auction of $31.5bn (pounds 19.5m) in three and 10-year notes scheduled from today and tomorrow is now likely to be postponed because it would force the Treasury through the $4.9trillion national debt ceiling. Most traders expect the government to avoid default, by arranging a temporary debt limit increase.

A default would raise US borrowing costs, and might prompt overseas investors to cut their holdings of US assets.