Asian stocks sink before US Congress votes on deal to avoid debt default

Asian stock markets sank Wednesday ahead of a vote by Congress on a deal to avert a government debt default, while a downturn in Chinese factory activity deepened, adding to signs global economic activity is weakening.

Shanghai, Tokyo, Hong Kong and Sydney retreated. Oil prices declined.

Wall Street's benchmark S&P 500 index edged up less than 0.1% on Tuesday as President Joe Biden and U.S. House Speaker Kevin McCarthy tried to line up votes in support of their deal to allow the government to borrow more. Without agreement, officials warn the government will run out of money as soon as next week, which would roil the economy and financial markets.

“Any upcoming obstacle to a smooth pass-through of the deal could still trigger some de-risking,” said Yeap Jun Rong of IG in a report.

Also Wednesday, an official Chinese survey of manufacturers found activity contracted in May on weak global and domestic consumer demand.

The Shanghai Composite Index lost 0.7% to 3,200.30 and the Nikkei 225 in Tokyo fell 1.4% to 30,888.52. The Hang Seng in Hong Kong tumbled 2.2% to 18,178.14.

The Kospi in Seoul retreated 0.2% to 2,580.53 and the S&P-ASX 200 in Sydney lost 1.2% to 7,123.50.

India's Sensex opened down 0.5% at 62,629.41. New Zealand advanced while Southeast Asian markets also declined.

On Wall Street, the S&P 500 gained to 4,205.52, near its highest level in nine months.

The Dow Jones Industrial Average slipped 0.2% to 33,042.78. The Nasdaq composite rose 0.3% to 13,017.43.

Uncertainty about U.S. government debt adds to market anxiety over signs global economic activity is slowing following interest rate hikes.

Biden and McCarthy are trying to persuade legislators to support the deal in a vote by the full House on Wednesday. Some legislators object to spending cuts in the plan while others want bigger reductions.

Even without a default, all the partisan brinkmanship could erode more faith in the U.S. government. That could trigger another downgrade to its credit rating, following Standard & Poor's rating cut in 2011.

China's economic recovery has been weaker than some businesspeople and investors hoped.

A monthly purchasing managers’ index issued by the national statistics agency and an industry group declined to 48.4 from April’s 49.2 on a 100-point scale on which numbers below 50 show activity declining. Manufacturers have been hurt by weak global demand and a slower-than-expected recovery in Chinese consumer spending.

Traders are bracing for another possible increase in the Federal Reserve's key lending rate at its next meeting in two weeks but hope that will the last in this cycle.

A report Tuesday morning showed that confidence among American consumers is falling and remains well below where it was before the pandemic. Household is been one of the main pillars forcing investors to push out their predictions for an upcoming recession by another three to six months.

In energy markets, benchmark U.S. crude lost 19 cents to $69.27 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell $3.21 on Tuesday to $69.46. Brent crude, the price basis for international oil trading, shed 18 cents to $73.53 per barrel in London. It sank $3.53 the previous session to $73.54.

The dollar declined to 139.67 yen from Tuesday's 139.87 yen. The euro retreated to $1.0695 from $1.0719.