Stocks down, bonds up on Wall St overnight

US stocks fell, while Treasuries rose, amid continuing concern about the ongoing impasse over US federal government funding and the potential risk of a debt default.

In afternoon trading in New York, the Dow Jones Industrial Average dropped 0.57 per cent, the Standard & Poor's 500 Index shed 0.49 per cent, and the Nasdaq Composite Index fell 0.68 per cent.

Declines in Visa, Microsoft and American Express, down 1.6 per cent, 1.4 per cent and 1.2 per cent respectively, paced losses in the Dow.

"With each political party pointing fingers at the other as the cliff approaches, investors feel not only rising risks brought about by growing uncertainty but also that those risks are becoming less transparent because of the lack of data collection," Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York, told Reuters.

The CBOE Volatility index, Wall Street's so-called "fear gauge", climbed 10.1 per cent to 18.44, the highest level in more than three months.

On Sunday Treasury Secretary Jacob Lew told CNN that Congress was "playing with fire" in its deadlock over raising the country's debt limit.

"On the 17th, we run out of our ability to borrow," Lew said on CNN's 'State of the Union'. "If they don't extend the debt limit, we have a very, very short window of time before those scenarios start to be played out."

"We've never gotten to the point where the United States government has operated without the ability to borrow. It's very dangerous," Lew said. "It's reckless, because the reality is, there are no good choices if we run out of borrowing capacity and we run out of cash."

Even so, Moody's Investors Service said it sees a "very low" chance the US will default on its debt payments. The impact of the partial government shutdown on the economy may not be particularly damaging in the short term, and the effect would be seen gradually over time if it was an extended one, Moody's Chief Executive Officer Ray McDaniel told Bloomberg on October 5.

Shares of BlackBerry gained, last up 4.9 per cent to C$8.27, amid reports the company has attracted interest from Cisco Systems, Google and SAP.

US earnings season is set to get underway. Alcoa, the country's largest aluminium producer, is scheduled to release third-quarter results after the market close on Tuesday.

Profits for the broad index probably increased 1.7 per cent during the third quarter while sales rose 2.2 per cent, according to analysts' estimates compiled by Bloomberg.

In Europe, the Stoxx 600 Index ended the day with a 0.2 declined from the previous close. The UK's FTSE 100 slide 0.3 per cent, while Germany's DAX fell 0.4 per cent. France's CAC 40 closed little changed.