SINGAPORE — Cautious optimism that the US government would avert an economically damaging debt default lifted world shares and supported the dollar yesterday though prices traded within tight ranges.
The hopes for a deal rose after US Senate majority leader Harry Reid, a Democrat, and his Republican counterpart, Mitch McConnell, ended a day of talks on Monday, with Reid saying they had made “tremendous progress”.
While markets remain wary over the eventual outcome, the signs of a last minute deal lifted Europe’s blue chip index, the Euro STOXX 50, by 0,4% to reach a 2-and-a-half-year high.
Germany’s DAX touched a record peak.
“Optimism that a deal will soon be agreed continues to prevail. Relief that politicians have taken the US to the edge and back again is clear,” Keith Bowman, equity analyst, said.
Earlier, the more bullish sentiment had boosted Asian shares to their highest in nearly five months and seen Japan’s Nikkei gain 0,25% to be near a two-week peak.
The gains around the world have lifted MSCI’s world equity index, which tracks share in 45 countries, by 0,2%, leaving it just three points below a five-year high hit in mid-September before the crisis in Washington began.
The dollar, meanwhile, was holding firm against most major currencies, having suffered the most from fears that the political dysfunction in Washington could leave the US struggling to service its massive debts.
Any gains in the dollar are seen as limited as the government shutdown forced by the political impasse is expected to have hurt the US economic recovery and convinced many that the Federal Reserve will have to extend its monetary stimulus.
“If we get some kind of temporary resolution in the US it will still have a small positive short-term impact on the dollar.
“But in the medium-term this is clearly dollar-negative,” Richard Falkenhall, a currency strategist, said.
Against a basket of currencies, the dollar stood at 80,29, some distance above the eight-month low of 79,63 hit earlier this month when the government began a partial shutdown.