* Chance of U.S. government shutdown hangs over markets
* Dollar slides broadly, most major world stock indexes lower
* Oil falls in choppy trade
Global equity markets fell and the dollar hit a 7-1/2-month low against the safe-haven Swiss franc on Friday as the prospect of a shutdown of U.S. government operations next week and a possible debt default several weeks later unsettled investors.
A lack of clarity over when the Federal Reserve will scale back its stimulus program also weighed on the dollar. The Fed must be patient in deciding when to trim its bond purchases, two of its most dovish officials said, a week after the U.S. central bank unexpectedly stood pat instead of tapering.
President Barack Obama said he would not agree to delaying or defunding the new healthcare reform law, that the Senate acted responsibly earlier in the day to keep the government open and that healthcare exchanges would open on Tuesday.
Obama also said that failure to raise the government's debt limit would be far more dangerous than a shutdown, and would have economic impacts domestically and around the world.
Washington braced for a partial shutdown on Oct. 1 as Congress tackled an emergency spending bill that Republicans want to use to achieve Tea Party-backed goals, such as defunding the Affordable Care Act.
As expected, the Senate passed a bill to fund government operations from Oct. 1 to Nov. 15 and sent it to the House of Representatives, where Republicans are considering attaching items that could block the emergency funding.
"As this deadline approaches, investors are stepping up their sale of dollars on the growing concern that a government shutdown will undermine the quality of U.S. assets and lead to a retrenchment in U.S. growth," said Kathy Lien, managing director at BK Asset Management in New York.
Congress also faces the hard task of raising the limit on federal borrowing authority, which Republicans also are targeting for controversial add-ons.
Without a debt limit increase by Oct. 17, Treasury Secretary Jack Lew has warned, the United States would have a difficult time paying creditors and operating the government.
The cost of insuring against a U.S. default rose to its highest since May in the thinly traded market for credit default swaps.
Investors would have to pay about $32,000 to insure $10 million worth of Treasuries against default in five years, up from $22,000 a week ago.
Andre Bakhos, managing director at Janlyn Capital LLC in Bernardsville, New Jersey, said that as the weekend approaches, tensions were mounting over the haggling in Washington.
"Until there's greater visibility, the market is going to be choppy and erratic," Bakhos said.
The dollar fell against both the yen and the euro, as well as the safe-haven Swiss franc. The dollar index was down 0.34 percent to 80.253 against a basket of other major currencies.
Most major stock indexes fell, with the exception of Brazil's Bovespa index, which edged higher. The benchmark S&P 500 and Dow posted their first weekly drop in four.
MSCI's all-country world equity index fell 0.15 percent, and the FTSE Eurofirst 300 index of leading European shares fell 0.23 percent to close at 1,254.59.
The Dow Jones industrial average closed down 70.06 points, or 0.46 percent, at 15,258.24. The Standard & Poor's 500 Index fell 6.92 points, or 0.41 percent, at 1,691.75. The Nasdaq Composite Index slid 5.83 points, or 0.15 percent, at 3,781.59.
Sterling rose to $1.6137 against the dollar after Bank of England Governor Mark Carney was quoted as saying he saw no need for more bond-buying by the central bank given signs of recovery in the British economy.
Economic data was mixed.
U.S. consumer sentiment slid in September to its lowest in five months as consumers saw higher interest rates and sluggish economic growth ahead, a survey showed.
The Thomson Reuters/University of Michigan's final reading on the overall index on consumer sentiment slipped to 77.5 in September from 82.1 in August, the lowest final reading since April.
U.S. household spending rose in August, however, as incomes were buoyed by solid wage gains, suggesting growing momentum in the U.S. economy despite months of reduced government spending.
American families spent 0.3 percent more last month than the month before, in line with the median forecast in a Reuters poll, Commerce Department data showed.
U.S. Treasuries prices rose on concerns about the implications of a U.S. government shutdown.
Benchmark 10-year Treasury notes were up 10/32, their yields easing to 2.6099 percent.
Brent crude oil fell in volatile trading, marking its third straight weekly loss, as diplomatic strides on Iran's nuclear program and Syria's chemical weapons drained the geopolitical risk premium from the markets.
Brent extended losses in post-settlement trading after Obama said he spoke with Iranian President Hassan Rouhani.
Brent crude oil for November settled down 58 cents at $108.63 a barrel.
U.S. crude futures for delivery in November fell 16 cents to settle at $102.87 a barrel.