Wall St ends up on hopes of debt solution in Washington

NEW YORK (REUTERS) - United States (US) stocks rose on Friday, extending gains from a major rally in the previous session, as investors were hopeful for a solution to end the partial US government shutdown and raise the US borrowing limit to avoid a possible default.

The S&P 500, which jumped more than 2 per cent on Thursday, ended above 1,700 for the first time since late September.

Buyers on Friday were motivated by the chance an agreement could come over the weekend. The Senate is expected to vote over the weekend on extending the federal debt limit through January 2015.

President Barack Obama and congressional Republican leaders worked to end a fiscal impasse that would allow a reopening of the federal government and an increase in the US debt limit.

"People don't want to be short going into a weekend, especially if a deal does get done," said Mr Dennis Dick, proprietary trader at Bright Trading LLC in Las Vegas.

The partial shutdown is now in its eleventh day and less than a week remains before an Oct 17 deadline to extend the government's borrowing authority and avoid a debt default.

All S&P sectors were up except consumer staples, which fell slightly. Energy stocks led the S&P 500, rising more than 1 per cent after the Environmental Protection Agency proposed lowering the required amount of ethanol to be blended into US gasoline after Thursday's market close.

The CBOE Volatility index VIX, Wall Street's so-called fear gauge, closed down 4.6 per cent at 15.72, the lowest in nearly two weeks.

"This rally will provide the opportunity to modify positioning, as we expect fundamentals to matter more as the credit cycle turns," said Mr Peter Cecchini, managing director at Cantor Fitzgerald in New York, writing in a note to clients.

The Dow Jones industrial average was up 111.04 points, or 0.73 per cent, at 15,237.11. The Standard & Poor's 500 Index was up 10.63 points, or 0.63 per cent, at 1,703.19.

The Nasdaq Composite Index was up 31.13 points, or 0.83 per cent, at 3,791.87.

For the week, the Dow rose 1.1 per cent, the S&P 500 rose 0.7 per cent while the Nasdaq fell 0.4 per cent as some of the strongest gainers in the tech sector sold off during week as investors were taking profits.

JP Morgan Chase & Co, the biggest US bank by assets, reported a rare quarterly loss after incurring US$9.2 billion (S$11.5 billion) in legal expenses. Its shares seesawed throughout the trading session, and ended flat at $52.51.

Wells Fargo & Co, the biggest US mortgage lender, reported a 13 per cent rise in third-quarter profit, but its mortgage banking income fell sharply as the refinancing boom began to fade. Wells Fargo shares also ended flat at $41.43.

Apparel chain Gap was down 6.7 per cent to $36.83 a day after reporting net sales were flat compared with last year.

The Thomson Reuters/University of Michigan index of consumer sentiment fell in October to its weakest in nine months and was below expectations.

Trading volume totalled about 4.8 billion shares on the New York Stock Exchange, the Nasdaq and the NYSE MKT, below the average daily closing volume of about 6 billion this year.

Both on the NYSE and the Nasdaq, advancing stocks outnumbered declining ones by a ratio of about 3 to 1.

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