Asian shares up as Washington narrowly avoids default

HONG KONG – Asian shares rose Thursday, October 17, after US lawmakers passed a last-minute bill to reopen the government and raise the country’s borrowing limit, avoiding a devastating default that threatened to spark another global recession.

Investors breathed a sigh of relief as Republican and Democratic senators found a compromise budget after weeks of bitter rows on Capitol Hill that called into question Washington’s credibility with its creditors, including China and Japan.

Tokyo rose 1.22%, Hong Kong added 0.50%, Sydney advanced 0.28%, Seoul climbed 0.32% and Shanghai added 0.6%.

Global markets had been on tenterhooks over the crisis, which saw Democrats refuse to give in to Republican demands for a new budget to include cuts to President Barack Obama’s flagship healthcare bill.

US gov’t to reopen

But with just hours to go before a Thursday deadline to raise the debt ceiling, Senate party leaders reached an agreement to reopen a government that was shut down on October 1, while extending the debt ceiling until the new year. (Read: Congress pulls US back from brink, averts default)

The Senate passed the last gasp bill by 81 votes to 18 before being sent to the House of Representatives, where is it expected to carry with cross-party support.

The bill restarts government operations until January 15 and raises the debt ceiling until February 7, giving lawmakers time to draw up a longer term deal.

Soon after the deal was announced Obama said: “Once this agreement arrives on my desk, I will sign it immediately.

“We’ll begin reopening our government immediately, and we can begin to lift this cloud of uncertainty and unease from our businesses and from the American people.”

But while the breakthrough has been widely welcomed, equity gains were limited.

“Approval of the debt deal eliminates uncertainties, which is good for the market,” Keisuke Shirasuka, chief fund manager at Mitsubishi UFJ Asset Management, told Dow Jones Newswires.

“However, as the market wasn’t factoring in a US default, shares weren’t oversold. Consequently, the approval will unlikely trigger major buy backs.”

Currency markets

On currency markets the dollar spiked against the yen in early trade, hitting 99.00 at one point, before easing in the late morning.

The greenback bought 98.80 yen against 98.79 yen in New York Wednesday, while the euro fetched $1.3537 and 133.76 yen compared with $1.3535 and 133.74 yen.

Economists had warned that failure to raise the debt ceiling would have sent the US into a historic default that would have put global markets in a tailspin and sparked a global recession worse than that seen after the 2008 financial crisis.

Washington’s top creditors China and Japan — which between them hold more than $2.4 trillion of US debt — had also called on US lawmakers to get their house in order, saying a default would have devastating consequences.

New York’s main contract, West Texas Intermediate (WTI) for delivery in November, was down four cents to $102.25 a barrel in morning trade, and Brent North Sea crude for December dipped five cents to $110.54.

Gold cost $1,280.30 at 0220 GMT compared with $1,282.80 on Wednesday. – Rappler.com