Asian shares extend losses

Shares were mostly lower in Asia on Thursday as worries about the U.S. economy and a possible default on U.S. government debt pulled Wall Street lower.

Japan’s benchmark Nikkei 225 index advanced 0.5% to 30,848.07, extending recent gains as investors bet on higher returns from Japanese companies.

Hong Kong’s Hang Seng sank 2% to 17,739.83 as investors fretted over the trajectory for China’s economic recovery after the government relaxed pandemic restrictions late last year. The Shanghai Composite index also fell, by 0.5% to 3,188.34.

Simmering tensions between China and the United States over technology and security have added to uncertainties.

In Seoul, the Kospi shed 0.3% to 2,559.56, while Australia’s S&P/ASX 200 gave up 0.9% to 7,146.50.

On Wednesday, the S&P 500 lost 0.7% after House Speaker Kevin McCarthy said Republicans and Democrats remain far apart in talks on raising the debt ceiling to prevent a potentially disastrous default on the U.S. government’s debt.

The main U.S. stock index is on track for its worst week in more than two months as the once-unthinkable creeps closer to possibility. Minutes from the Federal Reserve’s latest meeting showed policy makers are split on whether to keep raising interest rates.

The U.S. government could run out of cash to pay its bills as soon as June 1 unless Congress allows it to borrow more. The widespread belief on Wall Street is that Congress will come to an agreement at the 11th hour, as it’s done several times before, because a default would benefit no one and could cause tremendous disruptions to the economy and financial markets.

“As the early-June deadline ticks closer, only a concrete resolution may provide the much-needed conviction for markets rather than verbal reassurances, with the lingering risks of a continued impasse still keeping sentiments on a cautious tone,” Yeap Jun Rong of IG said in a commentary.

All told, the S&P 500 fell 30.34 to 4,115.24. The Dow Jones Industrial Average dropped 0.8% to 32,799.92, while the Nasdaq composite lost 0.6% to 12,484.16.

European shares also fell, as the government reported that inflation in the United Kingdom remains worse than expected, raising worries that the Bank of England may keep hiking interest rates and squeezing its economy. In Germany, business confidence fell in Europe’s largest economy.

The stock market has remained mostly resilient despite the worries. Fear has so far been concentrated in the bond market, where prices have dropped for Treasury bills due to pay out around the date of a possible default.

The yield on the 10-year Treasury rose to 3.73% from 3.70% late Tuesday. It helps set rates for mortgages and other important loans. The yield on the two-year Treasury, which moves more on expectations for Fed action, rose to 4.37% from 4.33%.

Interest rates are so high because the Federal Reserve has yanked them up at the fastest pace in decades to try to bring inflation under control.

Traders are hopeful just one more hike may be on the way this summer, if any at all. Federal Reserve officials were divided earlier this month on whether to pause their rate hikes at their upcoming meeting in June, according to the minutes of their latest meeting.

Helping to limit Wall Street’s losses were several companies that reported stronger results for the start of the year than analyst expected.

Kohl’s jumped 7.5% after reporting a surprise profit for its latest quarter, helped in part by momentum at its Sephora beauty shops. Analysts had expected it to turn in a loss.

Resilient spending by U.S. consumers has helped to fend off a recession even as manufacturing and other areas struggle with higher interest rates. Homebuilder Toll Brothers rose 2.1% after reporting much better results than analysts expected for the latest quarter.

In other trading Thursday, benchmark U.S. crude oil dropped 24 cents to $74.10 per barrel in electronic trading on the New York Mercantile Exchange. It gained $1.43 on Wednesday, to $74.34 per barrel.

Brent crude, the standard for international trading, slipped 13 cents to $78.10 per barrel.

The U.S. dollar rose to 139.65 Japanese yen from 139.41 yen. The euro fell to $1.0743 from $1.0754.