Global stocks fell, trimming their biggest quarterly gain since the start of 2012, while the Japanese yen strengthened before a potential U.S. government shutdown. Italian bonds slumped and crude oil traded near its lowest level in three months.

The MSCI All Country World Index lost 0.5 percent as of 8:30 a.m. in New York as the Stoxx Europe 600 Index slid 0.8 percent, Asia’s benchmark gauge fell 1.4 percent and futures on the Standard & Poor’s 500 Index tumbled 0.9 percent. Italian 10- year bonds retreated for a third day and the yield on 10-year U.S. Treasury notes declined to a seven-week low. The yen rose against all 16 major peers, reaching a three-week high against the euro. West Texas Intermediate oil fell as much as 1.5 percent.

Congress is scheduled to meet today to attempt to end a stalemate that raises the risk of the first government shutdown in 17 years and threatens talks to increase the debt limit. Italy’s government is on the verge of collapse after allies of former leader Silvio Berlusconi said they would quit the cabinet. China’s manufacturing rose less than economists estimated in September.

“Farce reigns and risk aversion rises,” Kit Juckes, the global strategist at Societe Generale SA in London, wrote in a note to clients. “The U.S. is still heading toward a shutdown, the Italian government is heading for a confidence vote that probably precedes elections.”

Debt Ceiling

The House of Representatives voted 231-192 yesterday to stop many of the Affordable Care Act’s central provisions for one year, tying it to an extension of U.S. government funding through Dec. 15. Should the Senate reject the bill today the government could be shut down starting tomorrow. Even if the budget fight is resolved, lawmakers would immediately move to the next fiscal dispute over raising the $16.7 trillion debt ceiling.

“Risk appetite is on the retreat, driven by the political drama on both sides of the Atlantic,” Witold Bahrke, who helps oversee $55 billion as a senior strategist at PFA Pension A/S in Copenhagen, wrote in an e-mail. “Dysfunctional governments are the root of the problem, which means heightened political uncertainty will be the dominating theme, reversing the equity- friendly sentiment from the first half of September.”

Failure to approve funding to keep the government open and to raise the debt ceiling would have a destabilizing effect on the economy, President Barack Obama said in a televised statement Sept. 27. Closing the government would cut fourth- quarter economic growth by as much as 1.4 percentage points depending on its length, according to economists from Moody’s Analytics Inc. to Economic Outlook Group LLC.

Treasury Yields

Ten-year Treasury yields declined as much as four basis points to 2.59 percent, the least since Aug. 12, after falling 11 basis points in the five days to Sept. 27. Credit-default swaps on U.S. Treasuries rose 2.3 basis points to 33.3, the highest since May 7, according to prices compiled by Bloomberg.

The yen appreciated 0.7 percent to 97.58 per dollar, the strongest level since Aug. 29.

The Japanese currency also rose as much as 1.1 percent to 131.38 per euro on demand for safety after Italy’s leaders stopped short yesterday of dissolving Prime Minister Enrico Letta’s five-month old administration.

Italy’s FTSE MIB Index slid 1.9 percent as UniCredit SpA and Intesa Sanpaolo SpA, the nation’s biggest banks, dropped more than 2.5 percent. Telecom Italia SpA rose 3.4 percent as a person with knowledge of the matter said Chief Executive Officer Franco Bernabe plans to resign this week.

Italy’s 10-year yield jumped as much as 24 basis points to 4.66 percent, the highest since June 27.

The cost of insuring against losses on Italian government debt climbed to the highest since July 15, with credit-default swaps linked to the sovereign bonds rising 18 basis points to 280 basis points, according to prices compiled by Bloomberg.

Yen Gains

The Stoxx Europe 600 Index declined 0.8 percent to the lowest level in more than two weeks. Mining companies led losses, with Rio Tinto Group sliding 2.6 percent in London trading, as a measure of Chinese manufacturing compiled by HSBC Holdings Plc and Markit Economics missed a preliminary estimate.

The Stoxx 600 has still climbed 4.2 percent in September. The gauge has rallied 8.7 percent since the end of June, on course for the biggest quarterly gain in four years.

The cost of insuring against losses on corporate bonds rose to the highest in a month. The Markit iTraxx Europe Index of credit-default swaps on 125 investment-grade companies increased 4.6 basis points to 106.9 basis points, the most since Aug. 30.

Emerging Markets

The MSCI Emerging Markets Index fell 1 percent, the biggest drop in a month. The PCOMP Index in the Philippines slumped 3 percent, the most in September.

HSBC Holdings Plc and Markit Economics said today that their manufacturing purchasing managers’ index for China delivered a reading of 50.2 for September, falling short of an estimate of 51.2 in Bloomberg survey. Fifty is the threshold between contraction and expansion. A report in Japan showed industrial production unexpectedly fell 0.2 percent in August from a year ago, after rising 1.8 percent in July. Analysts surveyed by Bloomberg called for a 0.5 percent gain.

The S&P GSCI dropped 0.7 percent, trimming the gain for this quarter to 3.4 percent, the most in a year. WTI crude oil slid 1.2 percent to $101.69 a barrel, headed for the lowest close since July 3. Brent futures lost 0.7 percent to $107.86 a barrel, while contracts on gasoline slipped 0.8 percent.