The S&P/TSX composite index was well off session lows, coming back from a 57-point deficit to finish 8.44 points lower at 12,839. Losses were partially limited by gains in the gold sector as bullion's attraction as safe haven investment pushed prices higher.
The commodity-sensitive Canadian dollar was off the worst levels of the day, closing down 0.06 of a cent at 96.79 cents US as prices for copper and oil also advanced.
Republicans in the House of Representatives are insisting that Democrats negotiate over the new U.S. health-care law as part of the funding deadlock. Senate Democrats insist that Republicans pass a straightforward temporary funding bill with no strings attached.
Disappointing job creation data also pressured U.S. indexes as the Dow Jones industrials fell 58.56 points to 15,133.14, the Nasdaq lost 2.96 points to 3,815.02 and the S&P 500 index shed 1.13 points to 1,693.87.
Payroll firm ADP reported that the U.S. private sector created 166,000 jobs last month, lower than the 178,000 that had been expected. It also revised lower its job creation figures for the previous two months.
That's likely all the jobs data that traders will get this week as one of the spinoff effects of the shutdown is an absence of government data that usually moves markets. The U.S. Labor Department said Tuesday it won't be issuing its employment report for September on Friday.
Market reaction to the shutdown had been relatively muted on hopes that economic damage from the budgetary impasse wouldn’t be too severe as long as it didn’t last too long.
But there is growing dismay that the standoff on Capitol Hill shows no signs of easing with some lawmakers in both parties suggesting the shutdown might last for weeks.
"(Traders) are nervous," said Fred Ketchen, manager of equity trading at ScotiaMcLeod.
"And as long as they’re nervous they’re not going to do anything and we’re going to have a lot more red than black."
Adding to the grim mood is a deadline of Oct. 17 when the U.S. hits its debt limit and starts to run out of money to pay bills.
The last time there was an impasse over the borrowing limit, in August 2011, it led to a downgrade of the United States’ credit rating by Standard & Poor’s and a plunge in the stock market.
The energy sector led decliners down, 0.75 per cent while the November crude contract on the New York Mercantile Exchange erased early losses to jump $2.06 to US$104.10 a barrel.
Prices accelerated after three days of declines amid a report that the southern leg of TransCanada's Keystone XL pipeline will be finished this month. Bloomberg News cited an interview with Les Cherwenuk, project director for TransCanada, who said completion of that portion of the pipeline would bring oil from the delivery hub in Cushing, Okla., down to the Gulf Coast, reducing reduce high storage levels. TransCanada (TSX:TRP) shares slipped a penny to C$45.19.
Cenovus Energy (TSX:CVE) declined 50 cents to C$30.31.
The telecom sector fell 0.64 per cent with Rogers Communications (TSX:RCI.B) off 44 cents to $43.91.
The financials sector was also a weight, down 0.44 per cent as Sun Life Financial (TSX:SLF) gave back 27 cents to $32.85.
The gold sector rose about 0.84 per cent and December bullion gained $34.60 to US$1,320.70 an ounce. Barrick Gold Corp. (TSX:ABX) advanced 42 cents to C$19.02.
The base metals sector turned positive, up 0.73 per cent with December copper up four cents to US$3.32 a pound. Teck Resources (TSX:TCK.B) gained 47 cents to C$27.88.
Elsewhere, BlackBerry (TSX:BB) (Nasdaq:BBRY) shares were up eight cents at $8.27 on the TSX, recovering from early losses of more than four per cent amid reports that U.S. private equity firm Cerberus Capital aims to sign a confidentiality agreement to access the smartphone maker's books. The move wouldn't guarantee Cerberus would actually make an offer for the company.
Earlier, the Globe and Mail reported that BlackBerry is looking at tapping the value of its extensive real estate holdings in the Waterloo, Ont.,-area to raise cash. It said that BlackBerry has asked for ideas to generate the largest possible return from its real estate in as little time as possible, through a confidential process begun last week.