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Stocks soar on government news

Associated Press

NEW YORK: An agreement to keep the U.S. from defaulting on its debt and reopen the government sent the stock market soaring Wednesday, lifting the Standard & Poor’s 500 index close to a record high.

The deal was reached just hours before a deadline to raise the nation’s $16.7 trillion debt limit. Senate leaders agreed to extend government borrowing through Feb. 7 and to fund the government through Jan. 15.

Markets stayed largely calm throughout the drama in Washington, with the S&P 500 actually gaining 2.4 percent since the shutdown began Oct. 1, after House Republicans demanded changes to President Barack Obama’s health-care law before passing a budget.

Wall Street gambled that politicians wouldn’t let the U.S. default, a calamity economists said could paralyze lending and push the economy into another recession.

“We knew it was going to be dramatic, but the consequences of a U.S. default are just so severe that the base case was always that a compromise was going to be reached,” said Tom Franks, a managing director at TIAA CREF, a large retirement funds manager.

Overall, third-quarter earnings at companies in the S&P 500 index are forecast to grow 3.1 percent from a year earlier, according to data from S&P Capital IQ. That’s slower than the growth of 4.9 percent in the second quarter and 5.2 percent in the first quarter.

On Wednesday, the Dow Jones climbed 205.82 points, or 1.4 percent, to 15,373.83. The S&P 500 gained 23.48, or 1.4 percent, at 1,721.54. That’s only four points below its record close of 1,725.52 set Sept. 18.

The Nasdaq composite climbed 45.42, or 1.2 percent, to 3,839.43.

The market for U.S. Treasury bills reflected relief among bond investors. The yield on the one-month T-bill dropped to 0.13 percent from 0.40 percent Wednesday morning, an extraordinarily large move.


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