US stocks, dollar drop amid worries over government shutdown

New York -Wall Street stocks pulled back from records and the dollar fell on Thursday as anxiety over a possible US government shutdown weighed on investor sentiment.

All three major US indices suffered declines, with the Dow dropping the most after ending above 26 000 for the first time on Wednesday. Analysts also cited lofty equity valuations and profit taking as factors in the dip.

London slid on a rising pound, while Paris finished essentially flat and Tokyo retreated amid profit taking. However, Frankfurt gained 0.7% as German semiconductor giant Infineon's shares surged a day after stellar annual results from Dutch computer chip maker ASML.

Despite the mostly lacklustre trading results, the underlying mood remained upbeat, traders said, buoyed by bullish Chinese data and strong corporate earnings.

Art Hogan, chief market strategist at Wunderlich Securities, said the bickering among congressional leaders over funding the government beyond Friday was disappointing after Washington successfully mobilized behind tax reform in December.

A government shutdown could be damaging to the economy, especially sectors that depend on federal spending, he said.

"You go from feeling pretty confident about Washington getting things accomplished" to "frustration" at the possibility of a government shutdown, Hogan said.

The risk of a shutdown also weighed on the dollar, which "sold off across the board" after Senate Republican Leader Mitch McConnell's delivered a "warning to plan for a shutdown," said Kathy Lien of BK Asset Management.

"With some eleventh hour scrambling, we still believe the (Republicans) will secure enough votes to keep the government running and if we're right, it should lead to a dollar recovery," Lien said.

"But there will only be a bounce if they reach a deal because right now investors still think that's unlikely."

General Electric had another bad day, falling 3.3% following the news Tuesday that it was taking a $6.2bn charge linked to the insurance business.

The conglomerate already was under heavy pressure due to weak performance in key industrial divisions.

Walmart advanced 1.6% following an upgrade from Goldman Sachs, which praised the retail giant's strategy and said it was likely to grant a "meaningful" dividend hike due to US tax reform.

Airbus rose 0.7% after Emirates Airlines struck a $16bn deal to buy 36 A-380 superjumbo aircraft, having traded as much as three percent up on the day during the morning session.

The Emirates order throws the A-380 program a lifeline only days after the European manufacturer said it would have to halt production without new orders.