LONDON (AP) — Financial markets clung to the hope that the U.S. will avoid a default, even though a deadline to raise the country's debt ceiling is just hours away.
Though stocks edged lower Wednesday in Europe, they rose on Wall Street — which recovered from the previous day's losses, when investors were spooked by a series of dramatic twists. Republicans in the House of Representatives abandoned a vote to temporarily increase the debt ceiling and Fitch warned that it could strip the U.S. of its triple-A rating even if a deal is cobbled together in time.
Unless Congress acts by Thursday, the government will lose its ability to borrow and will be required to meet its obligations by relying on cash in hand and incoming tax receipts. That could mean the U.S. is unable to repay holders of Treasury bills that mature in coming days, or that it could miss interest payments on longer-dated Treasurys, and would be in default on its debt.
Investors have been remarkably sanguine in recent days as they seem to expect a deal will eventually be agreed between Republicans in Congress and the White House.
"The financial markets continue to buy into claims on Capitol Hill that a deal on the debt ceiling will be done before tomorrow's deadline," said Craig Erlam, market analyst at Alpari.
In Europe, the FTSE 100 index of leading British shares was down 0.2 percent at 6,536.14 while Germany's DAX fell 0.1 percent to 8,799.99. The CAC-40 in France was 0.6 percent lower at 4,228.62.
Wall Street opened higher, with the Dow up 1.2 percent at 15,351 and the broader S&P 500 advancing the same rate to 1,718.
The Senate now appears to have retaken the initiative in trying to forge a deal. The expectation in the markets is the Senate will agree on a deal and send it to the House, where Republicans will have to make a decision that could seriously impact both their political futures as well as the wider economy.
Analysts said trading through the day could be choppy and nervous, especially if a deal is not forthcoming. In Europe, that could mean some volatility towards the end of the session.
"Providing there are no further developments by then, an aggressive sell in late afternoon trading could well take place," said Alastair McCaig, market analyst at IG.
Earlier in Asia, Japan's Nikkei 225 rose 0.2 percent to close at 14,467.14 while Hong Kong's Hang Seng dropped 0.5 percent to 23,228.33. China's Shanghai Composite fell 1.8 percent to 2,193.07. Australia's S&P/ASX 200 added 0.1 percent to 5,262.91.
The mood outside stock markets was fairly cautious, too. Among currencies, the euro was flat at $1.3523 while the dollar rose 0.7 percent to 98.83 yen. In the oil markets, a barrel of benchmark New York crude was up 60 cents at $101.81 a barrel.
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