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* Fall in FX volumes estimated at 5-15 percent
* European stock activity down 19 pct, bonds down 15 pct
* Muted trading set to hit banks' revenues
By Anirban Nag and Toni Vorobyova
LONDON, Oct 14 (Reuters) - Trading volumes across financialmarkets have fallen in the first two weeks of October asuncertainty over the U.S. fiscal impasse saps investor appetite,boding ill for banks' fourth-quarter revenues.
Many asset managers and speculators who were wrong-footed bythe Federal Reserve's surprise decision in late September tostick to its bond-buying programme were banking on the finalthree months of 2013 to make up for some of their earlierlosses.
But the latest cliff-hanger being played out in Washingtonand a real threat that the United States could default on itsdebt have made investors cautious, confining banks, hedge funds,insurance and pension funds to the sidelines.
As a result, trading activity has fallen, with participantsestimating volumes have dropped 5-15 percent in the currencymarket - the world's most liquid financial market with up to $5trillion a day changing hands.
In Europe, stock market activity has fallen by nearly afifth while volumes in German government bond futures - a proxyfor trade in the benchmark 10-year cash Bund - dropped 15percent last week compared with the previous one.
"It is as dead as a door nail," said Peter Kinsella,strategist at Commerzbank referring to the volumes in thecurrency market. "Traded volumes are lower by 10-15 percent inthe first few weeks of October than usual."
Vincent Craignou, global head of FX and Precious MetalsDerivatives at HSBC, one of the top banks in the currencymarket, agreed volumes have been on the low side.
"Anecdotally, it is very quiet with the U.S. debt ceilingproblems keeping many institutional investors on the sidelines."
CLS Bank, which operates the largest foreign exchangesettlement system, declined to comment on October numbers. Thelatest data from the bank shows that while the average dailytrading volume picked up to $5.05 trillion in September from$4.5 trillion in August, it was well below a record high of $5.6trillion in June and down 2.7 percent from a year ago.
HITTING TOP LINE
Foreign exchange trading volumes soared in the first half. Amassive monetary easing programme in Japan triggered widespreadyen selling and expectations the Federal Reserve would scaleback its monetary stimulus led to dollar buying. However,activity has since tapered off and shows no sign of picking up.
"It is correct that the currency market is much quieter inthe first two weeks of October than before," said KennethDickson, Investment Director at Standard Life, which has $271billion of assets under management. "Unless there is a solutionin the U.S., investors will hold fire."
Without a solution banks' earnings from trading activity infixed income, currencies and commodities (FICC) will be hurt.
Deutsche, Citi, HSBC and JPMorgan are all major players in FICC and depend on increasedvolumes and volatility to make gains from trading activity.
JPMorgan unveiled on Friday an 8 percent drop in revenuesfrom trading in fixed income markets in the third quarter from ayear earlier.
Deutsche is set to report revenues from FICC trading fallingby more than a third in the same period while Barclays, anotherbig bank, has warned of a sharp slowdown in trading bonds andother instruments.
Some see the uncertainty dragging on volumes and hurtingbanks' top line growth in the fourth quarter.
"There is no getting away from the fact that third quarterwas difficult and I think the outlook for the fourth quarter isuncertain. September, October, November are certainly importantmonths for banks," said Michael Symonds, credit analyst at DaiwaCapital Markets.
"The likely continuation of the political deadlock anduncertainty through the end of November is a cause for top linerevenues concern."
Trading volumes on the EuroSTOXX 50 index of euro zone bluechip stocks dropped from an average of nearly 70 billion sharesa day in the week Oct. 2 to 56.8 billion in the following week,or a drop of 19 percent.
Volumes in Bund futures slipped to 2.9 million lots lastweek from 3.4 million the previous week, although this was wellwithin the range of the past five months.
"Investors are just not participating since there is noclear view," said Howard Jones, partner at RMG WealthManagement. "Until then the markets will go nowhere."
