NEW YORK (REUTERS) - Major United States (US) stock indexes posted their strongest rally in more than nine months on Thursday after signs of progress in negotiations to raise the US debt limit, at least temporarily.
The market rally left the S&P 500 less than 2 per cent away from its record closing high set three weeks ago, with traders now focused on an earnings season that begins in earnest on Friday with results from top banks JPMorgan and Wells Fargo.
House Republican leaders acted to break a logjam in negotiations by proposing a bill to raise the federal government's debt limit without attachments.
The move was a significant shift for Republicans, who had tried to use the must-pass legislation to extract concessions from Democrats on spending and gutting the new healthcare law known as Obamacare.
Their proposal, which they planned to present to President Barack Obama at the White House, would postpone the threat of a US default from Oct 17 until the middle or end of November.
For the first time since the government shutdown began 10 days ago, senior lawmakers from both parties predicted they would be able to resolve their differences in a way that would allow both sides to claim victory.
"What this is, is opening the door to discussion and negotiation when before we had two sides just finger pointing," said Mr Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.
"We don't know if in six weeks we'll be in the same place, but at least this opens the possibility" of a lasting deal," he said.
The CBOE Volatility index, often used to measure the level of investor anxiety, plunged 15.9 per cent to 16.48, near the level it was in late September, prior to the US government shutdown.
The Dow Jones industrial average rose 323.09 points or 2.18 per cent, to 15,126.07, the S&P 500 gained 36.16 points or 2.18 per cent, to 1,692.56 and the Nasdaq Composite added 82.971 points or 2.26 per cent, to 3,760.747.
The S&P posted its largest daily percentage gain since Jan 2, when yet another market pullback was reversed after politicians reached an agreement regarding the so-called fiscal cliff.
In one of the few economic indicators that continues to be published amid the federal government partial shutdown, data showed the number of Americans filing new claims for jobless aid touched a six-month high last week. A computer-related backlog of claims was processed and the partial government shutdown hit some non-federal workers.
Boeing Co shares led percentage gains on the blue-chip Dow industrials, up 3.9 per cent to $118.90 after the plane maker said it will restructure its commercial airplane strategy and marketing functions. The announcement came days after the company lost a US$9.5 billion (S$11.8 billion) order in Japan, previously its most secure market.
This year's high-flying tech stocks rebounded after several days of declines. Facebook was up 4.9 per cent to $49.05, Best Buy gained 7.5 per cent and Netflix rose 5.4 per cent. Among the year's best performers on the S&P 500, the stocks were the top drags in the market's recent decline.
After the closing bell, shares of Safeway Inc rose 6.6 per cent to $33.65 after the grocery store operator said it plans to leave the Chicago market by early next year and posted sharply lower earnings for the third quarter.
Citrix Systems Inc shares were off 11.9 per cent to $58.75 after the cloud-computing software maker estimated quarterly results below analysts' expectations because businesses had delayed contracts.
About 98 per cent of the S&P 500 components posted gains. On the NYSE, more than six issues rose for every one that fell and on Nasdaq winners outnumbered losers by a ratio of 5.3 to 1.