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Stocks soar on hint of debt breakthrough

- The Washington Times - Thursday, October 10, 2013

Wall Street stocks soared Thursday on signs of a possible breakthrough in the standoff in Washington, with House Republicans proposing a short-term increase in the national debt limit that would prevent a possible default on U.S. Treasury securities for another six weeks.

The Dow Jones industrial average surged 323 points to close at 15,126.07 as investors celebrated a deal that the White House said it would consider to raise the $16.7 trillion debt ceiling through Nov. 22 and then start budget talks with the goal of securing further reductions in budget deficits that have already plunged dramatically this year.

The Standard & Poor's 500 index rose 36.16 points to 1,692.56 and the Nasdaq composite rose 82.97 points to 3,760.75, both posting gains of more than 2 percent.

"U.S. equities put in one of the best daily performances of the year," said Tom Porcelli, chief U.S. economist at RBC Capital Markets. Still, the debt drama isn't over, and another shoe will drop on Friday — when, he said, a report from the University of Michigan likely will show a steep fall in consumer confidence caused by the debt showdown and government shutdown that started last week.

That loss of confidence poses a broad threat to economic growth and can be seen in diminished sales at U.S. department stores in the past week, he said, though some of the loss may be reversed if Thursday's debt deal produces a lasting truce in Washington.

The short-term debt deal ran into trouble after the markets closed, with Senate Majority Leader Harry Reid, Nevada Democrat, declaring that's "not going to happen" after a meeting at the White House.

Senate Democrats want a longer-lasting increase in the debt limit that would carry through the 2014 midterm elections.

Even if it eventually passes, the short-term deal would provide only another month or so of relative calm for financial markets before investors start worrying again about the possibility of default after Nov. 22.

Stocks got another boost Thursday from a successful Treasury sale of 10-year bonds, which soothed worries that global investors might start to boycott U.S. debt auctions owing to rising worries about default.

"It seemed to go off without a hitch," said RBC bond analyst Michael Cloherty.

The gain in stocks comes despite news that the government shutdown, now in its second week, caused a big jump in joblessness last week. Markets have been increasingly fixated on the unsettling possibility of lapses in payments on Treasury bonds this month, while taking the shutdown more in stride.

The Labor Department reported Thursday morning a surge of 66,000 in first-time jobless claims to 374,000 last week, and attributed much of the increase to filings by furloughed federal contractors as well as a backlog of claims in California.

The report shows the beginnings of damage to the economy from the prolonged shutdown, which still shows no signs of ending.

The debt deal proposed by House Republicans contained no provisions to reopen the government. Furloughed federal employees eventually will be eligible for jobless benefits as well, if the shutdown goes on much longer.

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