* U.S. debt default looms as lawmakers remain divided
* Dollar hits fresh record low versus Swiss franc
* U.S., European stocks fall (Updates prices, adds comment, byline)
By Wanfeng Zhou
NEW YORK, July 26 (Reuters) - The U.S. dollar fell on Tuesday as U.S. lawmakers remained deadlocked over raising the nation's debt ceiling to avoid a devastating default, while U.S. and European shares also declined.
Unless lawmakers reach a deal to raise the $14.3 trillion ceiling by Aug. 2, the United States would face the prospect of a default on some of its $9.6 trillion government bonds outstanding.
In a televised address, President Barack Obama warned that this would be a "reckless and irresponsible outcome," but he gave no indication that a compromise was imminent. For more, see [ID:nN1E76N0CA]
Weakness in stocks earlier weighed on crude oil prices, while gold hovered near a record high hit in the previous session as investors looked to the precious metal for safety.
The U.S. currency hit a record low against the Swiss franc
of 0.7997
"The market is getting more nervous about the debt ceiling issue," said You-Na Park, currency strategist at Commerzbank in Frankfurt. "If the market was really starting to price in the possibility of a default, the dollar would be losing more than what we saw this morning."
Against a basket of currencies, the dollar <.DXY> fell 0.6
percent. The euro rose 0.8 percent to $1.4498
U.S. stocks were mostly lower, pressured by worries about
U.S. debt talks and weakness in 3M Co
The Dow Jones industrial average <.DJI> was down 60.85 points, or 0.48 percent, at 12,531.95. The Standard & Poor's 500 Index <.SPX> was down 2.15 points, or 0.16 percent, at 1,335.28. The Nasdaq Composite Index <.IXIC> was up 2.10 points, or 0.07 percent, at 2,844.90.
"The level of confidence that a deal will be done is starting to weaken based on last night's speeches and all of the analysis that's gone on since last night," said Hugh Johnson, chief investment officer of Hugh Johnson Advisors LLC in Albany, New York.
European stocks fell 0.3 percent <.FTEU3> after
weaker-than-expected results from BP
World stocks as measured by MSCI world equity index <.MIWD00000PUS> rose 0.3 percent, while emerging stocks <.MSCIEF> rose 0.7 percent.
Investors so far appear to have done little to prepare for a default or a cut in the U.S. triple-A credit rating. Many are still clinging to the hope that lawmakers will eventually reach a deal. It is also nearly impossible to insure against what is considered a low-probability event, especially given the lack of alternatives and the depth of the market, analysts said.
The cost of insuring the United States against default
stood around 57 basis points
The credit default swap curve is nearly flat with one-year
CDS
TREASURY AUCTION
Fears that the government will run out of cash by Aug. 2 if lawmakers do not come to an agreement fueled anxiety about appetite for this week's $99 billion of new debt supply, starting with a $35 billion auction of two-year notes later Tuesday.
Still, Treasuries prices rose in recent trading, as a decline in the U.S. stock market renewed a bid for bonds and investors dipped their toes back into bonds after recent losses spurred by the default fears.
The benchmark 10-year note
Bund futures
In the commodities market, U.S. crude
"Clearly there are substantial tail events to hit the market, so the appeal of gold will still be very strong," said Michael Lewis, head of commodity research at Deutsche Bank. (Additional reporting by Natsuko Waki and Harpreet Bhal in London, and Gertrude Chavez-Dreyfuss, Richard Leong and Angela Moon in New York; Editing by Padraic Cassidy)