Stocks Rally Most Since January, Bill Rates Fall on Talks

U.S. stocks jumped the most since January and Treasury bill rates tumbled as lawmakers moved toward an agreement to raise the debt ceiling and avoid a default. Gold slumped while oil rallied.

The Standard & Poor’s 500 Index soared 2.2 percent at 4 p.m. in New York for the biggest advance since Jan. 2. The Stoxx Europe 600 Index climbed 1.7 percent, rebounding from a one-month low. Rates on Treasury bills scheduled to mature on Oct. 17 dropped for the first time in six days. The dollar appreciated for a third day against the yen. Brent oil added 2.3 percent after Libya’s prime minister was detained and released. Gold futures slumped to a one-week low.

The White House endorsed a short debt-limit increase with no policy conditions attached, signaling potential support for House Republicans’ plan for a month-long reprieve from a default. Treasury Secretary Jacob J. Lew warned that “uncertainty” over the debt limit is starting to stress financial markets, speaking in testimony to the Senate Finance Committee a week before the government runs out of its borrowing authority on Oct. 17.

“You’re taking the nuclear option off the table, the fact that we’ll blow through the debt ceiling, that’s not going to happen,” Dan Veru, the chief investment officer who helps oversee $4.5 billion at Palisade Capital Management LLC, said by phone from Fort Lee, New Jersey. “This continues to put pressure on lawmakers to get a deal done because they’re seeing that just in fact talking is what markets want them to” do, he said.

Debt Deal

House Speaker John Boehner’s plan would push the lapse of U.S. borrowing authority to Nov. 22 from Oct. 17, and wouldn’t end the 10-day old partial shutdown of the federal government. Jay Carney, the White House press secretary, said President Barack Obama would support a short-term increase in the U.S. debt limit with no “partisan strings attached,” though he prefers a longer extension.

“To me it’s sort of like extending a few rounds on a heavyweight fight,” James Dunigan, who helps oversee $118 billion as chief investment officer in Philadelphia at PNC Wealth Management, said by phone. “So we were supposed to go six rounds and now it’s going to go 12. It’s provided the market with some peace that we’re going to step away from the edge here.”

‘Catastrophic’ Consequences

A Treasury Department report on Oct. 3 said consequences would be “catastrophic” should the U.S. default, including higher interest rates, lower investment and slow growth for decades to come. A partial federal government shutdown lasting through the end of this week would pare 0.2 percentage point from U.S. economic growth and cost as much as 0.5 point if it continues another two weeks, according to the median estimate in a Bloomberg survey of economists.

A report today showed 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.

The S&P 500’s rally today is the biggest since a 2.5 percent surge on the first trading day of the year, when lawmakers passed a bill averting spending cuts and tax increases known as the fiscal cliff. The index has almost erased its losses since the government shutdown began Oct. 1.

Better-than-estimated corporate earnings and three rounds of Fed stimulus have pushed up the S&P 500 as much as 155 percent from a 12-year low in 2009. After reaching a record of 1,725.52 on Sept. 18, the benchmark index slid 4.1 percent through Oct. 8 amid concern the Fed may start reducing its bond purchases and as lawmakers struggled to reach an agreement on the budget and debt ceiling.

‘Yellen Question’

The S&P 500 added 0.1 percent yesterday, halting a two-day, 2.1 percent slide, amid the signs of progress on the fiscal impasse and optimism that Janet Yellen, nominated to lead the Fed, won’t rush to withdraw stimulus.

“If the market is allergic to uncertainty, you took away the Yellen question and the Fed succession question,” said Dunigan. “You took away at least for the short term the threat of a default. Take those two major uncertainties away, it was cause for the market to rally here.”

Volatility Index

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, slumped 16 percent today to 16.48 for the biggest retreat since April. The gauge is down 8.6 percent in 2013 after briefly erasing its loss for the year on Oct. 8.

All 10 industries in the S&P 500 rallied at least 1.3 percent, with only 11 stocks in the index declining. Companies whose earnings are most tied to economic swings led the gains. The Morgan Stanley Cyclical Index jumped the most in a month, adding 1.9 percent. Nike Inc., UnitedHealth Group Inc. and Boeing Co. rose more than 3.6 percent, pacing advances among the largest companies.

Banking shares rallied 2.9 percent as a group, the most since June 2012, as all 81 members of the S&P Financials Index advanced. American Express, the biggest U.S. credit-card issuer by purchases, jumped 3.4 percent. Bank of America Corp. and JPMorgan Chase & Co. gained at least 2.8 percent.

The Stoxx 600 rebounded from the lowest close since Sept. 5 as all 19 industry groups advanced. The index gained the most since Sept. 2. Italy’s Banco Popolare SC and Germany’s Commerzbank AG led an advance in financial shares, rising more than 1 percent. CGG, the largest seismic surveyor of oilfields, rallied 2.1 percent in Paris after saying its vessel production rate climbed.

Treasury Bills

Rates on Treasury bills tumbled and yields on longer-maturity U.S. debt rose as lawmakers worked toward a short-term increase in the nation’s debt limit. The rates to borrow and lend Treasuries in the repurchase-agreement market rose a third day. Hong Kong’s futures and options market operator increased the discount on Treasury bills used as collateral for margin requirements.

The rates for all bills maturing through Nov. 14 fell, while those with due dates to Jan. 2 increased. The rate on $120 billion in bills due Oct. 17 dropped nine basis points to 0.39 percent, after touching 0.51 percent earlier, the highest level since they were sold in October 2012.

The 10-year Treasury yield rose two basis points to 2.69 percent, according to Bloomberg Bond Trader prices. The U.S. government sold $13 billion of 30-year bonds today with the highest demand since February.

‘Shift Attention’

“We are starting to see investor concerns shift attention to November and December bills as they expect the ceiling may be extended by several weeks,” said Andrew Hollenhorst, fixed-income strategist at Citigroup Inc. in New York.

Yields on 10-year German bunds increased six basis points to 1.87 percent. The 10-year gilt yield climbed seven basis points to 2.75 percent. The Bank of England left its benchmark interest rate and bond-buying plan unchanged today.

The cost of insuring against losses on corporate bonds fell. The Markit iTraxx Europe Index of credit-default swaps on 125 investment-grade companies decreased 5.5 basis points to 95.87 basis points, the first decrease since Oct. 4.

The dollar strengthened 0.9 percent to 98.24 yen and was little changed at $1.3523 per euro. Norway’s krone tumbled after a report showed inflation slowed in September. Sweden’s krona also weakened as separate data showed headline inflation unexpectedly held at 0.1 percent and industrial output dropped.

WTI, Brent

Crude futures climbed 1.4 percent to $103.01 a barrel, rebounding from a three-week low. West Texas Intermediate’s discount to Brent widened to a four-month high as the detention and release of Libya’s prime minister sparked concern that renewed instability may further curb the country’s exports. Brent rose 2.5 percent to $111.78 a barrel.

Prime Minister Ali Zaidan was released from custody hours after being detained by an anti-crime unit at a Tripoli hotel. Zaidan was “liberated” from those who were holding him and is in good health, state-run news agency Libyan Arab News Agency reported, citing government spokesman Mohamed Kaabar. The agency gave no further details. Libya is Africa’s biggest holder of crude reserves.

Gold futures fell 0.8 percent to settle at $1,296.90 an ounce, a one-week low, on speculation that the U.S. will avert a default, eroding demand for the precious metal as a haven.

The MSCI Emerging Markets Index added 1 percent. Benchmark gauges in Turkey, Thailand and Egypt advanced more than 1.2 percent. Banks led Poland’s WIG30 Index 3.1 percent higher after Moody’s Investors Service raised its outlook on the industry to stable, citing economic recovery. The Shanghai Composite Index lost 0.9 percent, led by financial companies on concern earnings growth will slow.

The rupee strengthened 0.9 percent against the dollar, reversing earlier losses after Reuters reported India is in talks with JPMorgan and other index managers for inclusion in bond indexes. Officials may ease some restrictions on foreign purchases of rupee-denominated debt for inclusion in the indexes, Reuters said without naming its sources.

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