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Asian markets soar on US debt deal

Asian markets soar on US debt deal
AFP
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First Published: Mon, Aug 01 2011. 02 52 PM IST
Updated: Mon, Aug 01 2011. 02 52 PM IST
Hong Kong: Asian stock markets surged on Monday after US President Barack Obama said lawmakers had reached a last-minute deal that would raise the country’s debt ceiling and avoid a catastrophic default.
Tokyo closed 1.34%, or 131.98 points, higher at 9,965.01 and Seoul gained 1.83%, or 39.10 points, to 2,172.31 while Sydney closed 1.65%, or 73.2 points, up at 4,497.8.
Hong Kong rose 0.99%, or 223.12 points, to 22,663.37 but Shanghai ended flat, edging up just 2.05 points to 2,703.78.
And in early European trade London’s FTSE 100 leapt 1.04%, the Frankfurt DAX 30 added 1.34% and the CAC 40 in Paris rallied 1.28%.
“I want to announce that the leaders of both parties in both chambers have reached an agreement that will reduce the deficit and avoid default, a default that would have had a devastating effect on our economy,” Obama said late Sunday in Washington.
The deal will raise the country’s $14.3 trillion debt ceiling by about $2.4 trillion in two steps, while calling for roughly the same amount in spending cuts over 10 years.
However, the bill must still pass through both houses of Congress, and Obama urged lawmakers “to do the right thing and support this deal”.
Traders worldwide have been on edge for weeks as the White House and Democrats squabbled with Republicans over how to make enough budget cuts to allow a hike in the debt limit.
A default by the United States, the world’s richest country, would send shudders through the global economy that could lead to another financial crisis.
The news briefly lifted the dollar -- after a steady sell-off last week as Democrats and Republicans struggled to come to an agreement -- but it soon eased back.
The greenback, which rose above the ¥78 level after the deal, was at ¥77.44 in Tokyo afternoon trade, up from ¥76.73 in New York late Friday.
The euro fetched $1.4399 against $1.4395. The European single unit rose to ¥111.48 from ¥110.41.
“The debt-ceiling issue had been disturbing the market and spawned risk aversion since last week,” said Kazuhiro Takahashi, a general manager of investment strategy and research at Daiwa Securities.
“As President Obama announced a deal, lost ground is being regained.”
However, he sounded a note of caution, adding: “This is not a factor that makes investors picture higher growth for the US economy. The market is reacting to the fact that what should have been settled earlier has finally been done so after a political game.”
Analysts also pointed out that data from the United States last week showed stagnant growth in the first half of 2011, raising fresh concerns of a recession.
The Commerce Department said gross domestic product grew only 1.3% in the second quarter, after 0.4% in the first, the weakest growth since the economy officially exited recession two years ago.
Both numbers were much lower than earlier forecasts - originally first-quarter growth had been put at 1.9% - and raised doubts about widespread forecasts of a 3.0%-plus pace for the rest of the year.
Eyes will be on the release on Friday of key non-farm payroll figures, with concerns that the economy is coming to a halt.
Oil rallied on the debt deal announcement. New York’s main contract, light sweet crude for delivery in September, surged $1.18 to $96.88 per barrel in the afternoon.
Brent North Sea crude gained $1.35 to $118.09.
Gold closed in Hong Kong at $1,615.00-$1,616.00 an ounce, up from Friday’s finish of $1,612.00-$1613.00.
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First Published: Mon, Aug 01 2011. 02 52 PM IST
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