Stocks rally as Senate reaches deal to raise debt ceiling

Stocks moved sharply higher Wednesday after word the Senate and House of Representatives had reached agreement on a plan to end the government shutdown and extend the debt ceiling before Thursday’s deadline.

The Dow Jones industrial average rose 205.82 points to 15,373.83. The Nasdaq Composite Index was up 45.42 points to 3,839.43 and the Standard & Poor’s 500 Index gained 23.48 points to 1,721.54.

Once the budget issues are resolved and sent to President Barack Obama for his signature, investors will be able to focus on economic issues such as employment reports and corporate earnings reports.

Commodities rose along with stocks. Oil was up $1.08 to $102.29 a barrel. Gold gained $9.10 to $1,282.30 an ounce.

Bank of America (NYSE: BAC) jumped 2.3 percent to $14.56 as lower legal expenses and loan losses helped profit rebound.

Mattel Inc. (Nasdaq: MAT) and PepsiCo Inc (NYSE: PEP) increased at least 1 percent as earnings topped analyst estimates.

International Business Machines Corp. (NYSE: IBM) fell 5.8 percent to $175.99 in extended trading after releasing quarterly results.

About 6.5 billion shares changed hands on U.S. exchanges, 11 percent above the three-month average.

The bipartisan leaders of the Senate reached an agreement to end the fiscal impasse and to increase U.S. borrowing authority. 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. House Speaker John Boehner said in a statement that Republicans won’t block the Senate compromise.

With no deal, the United States would exhaust its borrowing authority today and the government may start missing payments at some point between Oct. 22 and Oct. 31, according to the Congressional Budget Office.

The S&P 500’s advance over the past week has squeezed managers who borrowed and sold shares to bet on declines lawmakers would struggle to reach a deal. U.S. companies with the most short sales have climbed 4.7 percent since Oct. 9, compared with a 3.9 percent advance for the benchmark gauge, data compiled by Bloomberg and Goldman Sachs Group Inc. (NYSE: GS) show.

Hedge funds, whose bearish bets on stocks have held their returns to half the S&P 500 in 2013, helped send a gauge of manager bullishness compiled by ISI Group LLC within 0.2 point of its lowest reading in 2013 last week.

FedEx Corp. (NYSE: FDX) surged 2.7 percent to a record $123.26, adding to Tuesday’s 4.1 percent advance. The operator of the world’s largest cargo airline authorized a buyback plan of as many as 32 million shares, its biggest repurchase program ever.

JPMorgan Chase & Co. (NYSE: JPM) surged 3.2 percent to $54 and Goldman Sachs Group Inc. advanced 2.9 percent to $162.25 for the biggest increases in the Dow.

KeyCorp (NYSE: KEY) gained 2.4 percent to $12.14 and PNC Financial Services Group Inc. (NYSE: PNC) advanced 1.9 percent to $73.87 after both banks beat third-quarter profit estimates.

Mattel climbed 1 percent to $41.97. The world’s largest toymaker topped estimates as sales of Barbie and American Girl gained. The company has been trying to boost sales amid lackluster growth of the toy industry in the United States, the company’s largest market, as kids spend more time using electronic devices.

PepsiCo increased 2.1 percent to $82.27. The food and beverage company that investor Nelson Peltz wants to split up topped estimates as sales of snacks gained in the United States and Latin America.

Abbott Laboratories (NYSE: ABT) jumped 6.5 percent to $35.90 for the biggest gain in the S&P 500. The provider of health care diagnostics and medical devices reported third-quarter results that surpassed analyst estimates and raised its dividend by more than half.

Stanley Black & Decker Inc. (NYSE: SWK), the maker of power tools and electronic security systems, tumbled 14 percent to $76.75 for the largest drop in the S&P 500. The company cut its full-year earnings outlook on slower-than-anticipated improvement in margins in its security business and weakness in emerging markets, as well as uncertainty created by the U.S. government shutdown.

— Bloomberg contributed to this report.

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