U.S. stocks rally as Senate reaches deal to raise debt ceiling

U.S. stocks rallied, sending the Standard & Poor’s 500 Index (CME:SPZ13) toward a record, as the Senate crafted a deal to end the government shutdown and raise the debt ceiling before tomorrow’s deadline.

All 10 main industries in the S&P 500 gained at least 0.4%, with financial shares advancing the most. Bank of America Corp. jumped 2% as lower legal expenses and loan losses helped profit rebound. Mattel Inc. increased 1.1% after reporting earnings that topped analyst estimates.

The S&P 500 rose 1.1% to 1,716.89 at 3:33 p.m. in New York. The benchmark gauge slid 0.7% yesterday after climbing 3.3% over the previous four days. The Dow Jones Industrial Average gained 161.77 points, or 1.1%, to 15,329.78 today. The Nasdaq Composite Index climbed 1.1% to the highest level since 2000. Trading in S&P 500 stocks was 16% above the 30-day average at this time of day.

“Investors are relieved that it looks like we’re not going to go over the cliff,” Ben Hart, a research analyst at Radnor, Pennsylvania-based Haverford Trust Co., which oversees about $6 billion, said by phone. “It takes the worst case scenario off the table.”

The S&P 500 dropped 4.1% from its all-time high of 1,725.52 reached Sept. 18 as Congress struggled to reach agreement on a federal budget, forcing the first partial government shutdown in 17 years. The gauge has recovered 3.7% of the decline as optimism grew that a deal would be reached, and is within 10 points of its record. The S&P 500 is up 20% for the year.

Debt Limit

The bipartisan leaders of the Senate reached an agreement to end the fiscal impasse and to increase U.S. borrowing authority. The Senate and House plan to vote on it later today, and the White House press secretary said President Barack Obama supports the deal.

The framework negotiated by Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell would fund the government through Jan. 15, 2014, and suspend the debt limit until Feb. 7, setting up another round of confrontations.

The agreement concludes a four-week standoff that began with Republicans demanding defunding of Obama’s 2010 health-care law, and objecting to raising the debt limit and funding the government without policy concessions.

With no deal, the U.S. would exhaust its borrowing authority tomorrow and the government may start missing payments at some point between Oct. 22 and Oct. 31, according to the Congressional Budget Office. Fitch Ratings put the world’s biggest economy on watch for a possible credit downgrade yesterday, citing lawmakers’ inability to agree.

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