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U.S. Stocks Surge as Lawmakers Move to End Debt-Ceiling Impasse

October 10, 2013

Oct. 10 (Bloomberg) -- U.S. stocks jumped, giving the Standard & Poor’s 500 Index back-to-back gains for the first time in in three weeks, as signs grew that lawmakers could reach an agreement to increase the debt ceiling and avoid a default.

The S&P 500 rallied 0.6 percent to 1,666.40 at 9:30 a.m. in New York.

"After such a negative start to the week, the market welcomes the news of a potential deal," said Andreas Nigg, head of equity and commodity strategy at Vontobel Asset Management in Zurich. "I would expect a relief rally if a satisfactory solution is presented. We all expect that cooler heads will prevail, but we also know that the risk for serious damage, while very small, cannot be ignored."

President Barack Obama prepared to meet Republican leaders today as lawmakers embraced a possible short-term deal to avoid default, even as they battled over how to make it happen.

The S&P 500 added 0.1 percent yesterday amid the signs of progress on the fiscal impasse and optimism that Janet Yellen, nominated to lead the Federal Reserve, won’t rush to withdraw stimulus. The gauge is still down 2 percent this week as concern grew that lawmakers may fail to raise the federal debt ceiling in time to avoid a government default.

 

‘Very Dangerous’

 

U.S. Treasury Secretary Jacob J. Lew warned Congress today that "uncertainty" over the debt limit is starting to stress financial markets and trying to time an increase to the last minute "could be very dangerous."

The U.S. government is in its 10th day of a partial shutdown and has a week before the government’s borrowing authority lapses on Oct. 17. A Treasury Department report on Oct. 3 said consequences would be "catastrophic" should the U.S. fail to make payments, including higher interest rates, lower investment and slow growth for decades to come.

A report today from the Labor Department indicated more Americans than projected filed applications for unemployment benefits last week as California worked through a backlog caused by a switch in computer systems and the partial federal shutdown forced some government contractors to pare staff.

Most Fed officials last month predicted drag from fiscal restraint would be a factor causing them to hold the benchmark lending rate at 2 percent or lower until the end of 2016 to support growth and job creation.

The government closure has interrupted the flow of economic data the Fed uses to evaluate the health of the economy, from factory orders to trade and unemployment.

 

--Editors: Jeremy Herron, Srinivasan Sivabalan

 

To contact the reporter on this story: Corinne Gretler in Zurich at cgretler1@bloomberg.net

 

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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