If a deal on the emergency budget could not be reached by midnight US time – 5am in the UK – up to 1m federal workers face being sent home on unpaid leave as the government approaches its debt ceiling and can no longer fund spending.
The row focuses on President Obama’s healthcare plans, which Republicans want to delay but which Democrats are not prepared to give ground on.
US stocks on the S&P 500 fell 0.6 per cent while the Dow Jones was down 0.84 per cent. The pound surged to an eight-month high against the dollar, hitting $1.619.
Meanwhile in Europe, worries over the future of Italy’s government added to the chaos.
Italy’s stock market fell 1.2 per cent. Germany’s DAX and the FTSE 100 both dropped 0.77 per cent.