Last Updated: Tue Jul 26, 2011 14:53 pm (KSA) 11:53 am (GMT)

World stocks gain as US debt compromise awaited

After US President Barack Obama’s speech on the nation’s $14.3 trillion debt, world stocks mostly rose as investors anticipated a compromise between Republicans and Democrats. (File Photo)
After US President Barack Obama’s speech on the nation’s $14.3 trillion debt, world stocks mostly rose as investors anticipated a compromise between Republicans and Democrats. (File Photo)

World stocks mostly rose Tuesday as investors anticipated a compromise would resolve the US debt deadlock even as President Barack Obama described his country as being dangerously close to default.

The United States has until August 2 - now just a week away - to reach a deal to increase its $14.3 trillion debt limit or face not being able to pay its bills. That has led to fears the world's largest economy could default on its financial obligations and send shockwaves throughout the world.

Both Democrat Obama and Speaker of the House of Representatives, Republican John Boehner, spoke to Americans on Monday. Mr. Obama said a compromise was needed to avoid a “reckless and irresponsible” outcome. Mr. Boehner appeared to dig in his heels, saying President Obama would not get what he seeks.

Stocks were mixed in early European trading. Britain's FTSE 100 index rose 0.2 percent to 5,939.70. France’s CAC-40 declined 0.3 percent to 3,801.75, while Germany’s DAX advanced a fraction to 7,346.02.

US stocks were set to open higher. Dow Jones industrial average futures gained 0.2 percent to 12,574, and Standard & Poor’s 500 futures gained 0.2 percent to 1,335.50. The Dow fell 0.7 percent Monday, while the S&P slipped 0.6 percent.

In Asia, Japan’s Nikkei 225 stock average rose 0.5 percent to 10,097.72. Hong Kong’s Hang Seng Index gained 1.3 percent to 22,572.08 and South Korea’s Kospi added 0.9 percent to 2,168.70.

China’s Shanghai Composite Index advanced 0.5 percent to 2,703.03. The index fell 3 percent Monday following a weekend high-speed train crash that killed at least 39 people.

Markets in Australia, Taiwan, Indonesia and Singapore also rose, while India, the Philippines, Thailand and New Zealand fell.

“Most investors view that at the last minute the two parties can get some sort of compromise,” said Peter Lai, director at DBS Vickers in Hong Kong, explaining the resilience of Asian markets in the face of Washington's gridlock.

Democrats are seeking a combination of spending cuts and revenue increases to solve the debt crisis, while Republicans have vowed that any compromise must not include higher taxes.

The probability is increasing that the US will see its AAA credit rating downgraded, Credit Agricole Corporate & Investment Bank said in a report.

But it added that a delay in reaching a compromise on the debt ceiling beyond the August 2 deadline is not expected to lead to a default on US Treasuries because the Treasury Department would prioritize its payments to make sure interest on its debt is paid.

Chinese stocks stabilized after Monday’s sell-off following the Saturday collision of two bullet trains in eastern China.

“The loss yesterday looks more like panic selling,” said Cai Dagui, an analyst at Ping'an Securities.

In currencies, the dollar fell to 78.07 yen from 78.25 late Monday in New York. The euro strengthened to $1.4490 from $1.4380.

Benchmark oil for September delivery was up 40 cents to $99.61 a barrel in electronic trading on the New York Mercantile Exchange. Crude lost 67 cents to settle at $99.20 on Monday.

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