Asia markets up on US debt deal hope

Asian stock markets have risen on hopes the US will reach a deal on raising its debt ceiling, tracking overnight gains on Wall Street.

This was after US Republicans offered President Obama a short-term increase in the debt limit to stave off default.

Stock indexes in Japan, Australia, China and Hong Kong all gained.

There have been concerns that a failure to agree a deal to raise the limit may see the US default on its payments and hurt the global economy.

Analysts said the offer by the Republicans had raised hopes that such a scenario was likely to be avoided.

“What this is, is opening the door to discussion and negotiation when before we had two sides just finger pointing,” said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC.

“We don’t know if in six weeks we’ll be in the same place, but at least this opens the possibility [of a deal]”, he said.

Japan’s Nikkei 225 index rose 1.3%, Hong Kong’s Hang Seng gained 1.4%, Australia’s ASX 200 added 1.7% and South Korea’s Kospi was up 1.2%.

On Thursday, the US markets had their best day since January 2013, buoyed by the proposal. The Dow Jones, S&P 500, and Nasdaq indexes all closed up by more than 2%.

‘Very serious situation’

The US needs to agree on raising the nation’s $16.69 trillion (£10.47tn) debt ceiling by 17 October.

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Market Data

LAST UPDATED AT 04:35 GMT

Nikkei 225 14412.71 Up 218.00 1.54%
ASX All Ords 5222.90 Up 76.70 1.49%
Hang Seng 23239.06 Up 287.76 1.25%
SSE Composite 2190.93 Down -20.84 -0.94%
SSE SE 50 1637.93 Down -30.54 -1.83%
BSE Sensex 20425.10 Up 152.19 0.75%

Marketwatch ticker

DATA DELAYED BY 15 MINS

A failure to do so could see the US government default, as it runs out of money to pay its bills and service its national debt.

Analysts have said such a scenario was likely to have a serious impact on global economic growth.

“It would mean higher interest rates for everybody across the world,” Geoffrey Lunt from the banking group HSBC told the BBC. “This is a very serious situation.”

“I think the US Congress needs to be aware that the repercussions go way beyond the borders of the United States,” he added.

In the past few days, before Thursday’s recovery, the impasse over the debt limit had hit markets and increased the interest rate for one-month US Treasury bills.

The International Monetary Fund chief Christine Lagarde has also warned that failure by Washington to raise the federal debt ceiling would wreak serious damage on the US and global economies.

Continued shutdown

The offer by the Republicans comes as the US government continues to remain in a partial shutdown

House of Representatives Speaker John Boehner said the offer was in exchange for negotiations with the White House to end the shutdown that began on 1 October after Congress failed to agree on a new budget.

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Crisis jargon buster
Use the dropdown for easy-to-understand explanations of key financial terms:
Default
Strictly speaking, a default occurs when a borrower has broken the terms of a loan or other debt, for example if a borrower misses a payment. The term is also loosely used to mean any situation that makes clear that a borrower can no longer repay its debts in full, such as bankruptcy or a debt restructuring.
A default can have a number of important implications. If a borrower is in default on any one debt, then all of its lenders may be able to demand that the borrower immediately repay them. Lenders may also be required to write off their losses on the loans they have made.

Mr Boehner told reporters on Thursday: “What we want to do is to offer the president today the ability to move a temporary increase in the debt ceiling in agreement to go to conference on the budget for his willingness to sit down and discuss with us a way forward to reopen the government.”

The government has closed non-essential operations due to the shutdown.

Goldman Sachs has estimated that if the shutdown were to extend into a third week, it could shave as much as 0.9% from US GDP growth this quarter.

Crucially, markets have been left in the dark about the current state of the US economy, as the agencies responsible for closely watched data like the jobs figures and inflation have been closed during the shutdown.

On Thursday, JPMorgan Chase sold the US government debt in its portfolio that might be exposed to default in the event that the debt ceiling is not raised.