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U.S. Stocks Rise as Obama, Lawmakers Reach Deal on Debt Ceiling

Sunday, 31 Jul 2011 09:25 PM

 

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U.S. stock-index futures rallied, indicating the Standard & Poor’s 500 Index may rebound from its worst weekly loss in a year, as President Barack Obama announced an agreement to raise the federal debt limit and avoid a default.

S&P 500 futures expiring in September jumped 1.3 percent to 1,308.3 at 9:57 a.m. in Tokyo. Dow Jones Industrial Average futures climbed 179 points, or 1.5 percent, to 12,267. The U.S. dollar strengthened 1.4 percent against the yen and 1 percent versus the Swiss franc. IntercontinentalExchange Inc.’s Dollar Index, which measures the currency against six U.S. trading partners, fell in each of the past three weeks.

Obama said in Washington that both parties in the U.S. House and Senate had reached an agreement to raise the nation’s debt ceiling and cut the federal deficit.

“The leaders of both parties in both chambers have reached an agreement that will reduce the deficit and avoid default,” Obama said in remarks at the White House.

The S&P 500 posted a third straight monthly loss in July, the longest streak since 2008, amid speculation Republicans in the House would fail to reach a compromise with the Senate, controlled by Democrats, and Obama to boost the nation’s ability to borrow by an Aug. 2 deadline. That concern helped overshadow a second-quarter earnings season in which per-share profits have exceeded analysts’ projections at 78 percent of S&P 500 companies that reported so far.

AAA at Stake

Both S&P and Moody’s Investors Service are weighing a reduction of the U.S. credit rating. The impasse has boosted to 50 percent the chance S&P will cut the U.S. credit rating from AAA within three months, the ratings company said last month.

Even if the country defaults on some obligations after Aug. 2 and pays bondholders, S&P said short- and long-term interest rates would rise by 0.50 percentage point and 1 point, respectively. Ten-year Treasuries surged last week, driving yields as low as 2.77 percent on July 29, the lowest level since Nov. 30.

U.S. stocks fell five straight days, driving the S&P 500 down 3.9 percent to 1,292.28 for its biggest weekly decline in a year. The retreat brought the benchmark gauge closer to its average price of the last 200 days of about 1,285. A drop below that level could trigger further losses, according to analysts who study charts to make forecasts.

Stocks also fell last week after government reports showed orders for durable goods unexpectedly decreased and the U.S. economy grew less than forecast in the second quarter.

The Morgan Stanley Cyclical Index of companies most-tied to economic growth decreased 5.6 percent, the most in a week since July 2010. The Dow Jones Transportation Average had the biggest loss since August, falling 4.5 percent.

--With assistance from Julie Hirschfeld Davis and Heidi Przybyla in Washington and Jeff Sutherland in New York. Editors: Jeff Sutherland, Nick Baker

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

© Copyright 2014 Bloomberg News. All rights reserved.

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