US stock futures rise broadly in wake of debt deal

Published: Monday, August 1, 2011 at 9:28 a.m.
Last Modified: Monday, August 1, 2011 at 9:28 a.m.

NEW YORK — U.S. stock futures jumped Monday after President Barack Obama and Congressional leaders signaled they had agreed on a deal to raise the nation's borrowing limit ahead of Tuesday's deadline.

About a half hour before the market opened, Dow futures were up 131 points, or 1.1 percent, to 12,219. Major stock indexes in Asia and Europe were also up sharply.

The sharp jump in U.S. stock futures indicated that investors expected the deal would pass Congress as early as Monday. The federal government will be unable to pay all of its bills if a bill is not signed by the end of Tuesday, including interest payments on Treasury bonds, salaries of federal employees and Social Security checks to retirees.

The deal could snap a six-day losing streak for the Dow. Nearly every measure of investor confidence fell last week as Tuesday's deadline edged closer. The broad Standard and Poor's 500 index lost 3.9 percent. Gold, which tends to rise when investors aren't confident about riskier investments, rose 2 percent. And the yield on the 10-year Treasury note sank to 2.80 percent, its lowest level of the year.

On word of the deal, Japan's benchmark Nikkei index closed 1.3 percent higher on Monday while Hong Kong's Hang Send gained 1 percent. Oil futures rose 1 percent to nearly $97 a barrel. Gold dropped 0.7 percent to $1,621 an ounce as investors put a lower value on security.

S&P 500 futures were up 13 points, or 1 percent, to 1,302. Nasdaq 100 futures were up 26, or 1.1 percent, to 2,385.

The debt agreement would raise the U.S. debt limit by $2.1 trillion. It would also cut at least $2.4 trillion in federal spending over 10 years. Under the bill, a new joint committee of Congress would recommend deficit reductions by the end of November that would be put to a vote by Congress by year's end. The committee could include changes in tax laws as a way to raise revenue, a position long sought by the president and Democrats in Congress.

Credit ratings agency Standard and Poor's declined to comment on whether the bill contained enough deficit-reductions to prevent a downgrade on U.S. debt. Some investors say a downgrade remains a possibility.

"This agreement didn't resolve any of the fundamental differences in the direction of spending and revenues that would address our long-term issues," said Kate Warne, the investment strategist at Edward Jones.

Investors are hoping that the debt agreement allows the market to redirect its focus away from Washington and back to the economy and corporate profits. Despite weak economic growth in the U.S., the companies in the S&P 500 index are on pace for record profits this year because they make a greater share of their revenues overseas.

The market's attention will now likely shift to Friday's unemployment report. Economists polled by FactSet expect that the country added just 90,000 jobs last month. That is well below the 300,000 that is thought to signal a health jobs market. The unemployment rate is expected to remain at 9.2 percent.

Last Friday, the government reported that the economy grew at an annual rate of 1.3 percent from April through June. This year, the economy has grown at its slowest pace since the recession ended in June 2009. Sharp reductions in short-term government spending could further weaken the economy, analysts say.

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