US shares off highs, but still up strongly

The US stock market has rallied on relief that a default crisis looks likely to be averted.

The Dow spiked earlier today after details finally emerged of a compromise deal between Senate leaders to end the government shutdown and raise the debt ceiling.

Financial shares advanced the most, with Bank of America and Wells Fargo gaining more than 2%, while Citigroup and JP Morgan both rose over 3%.

With under an hour to the close of share trading in New York, the main stock index benchmarks had pared their gains, but remained well into positive territory. The Dow and S&P 500 were both up around 1.1%, while the NASDAQ 100 rose just under 1%.

President Obama has indicated his approval of the bi-partisan deal, which reportedly should garner enough votes in the House of Representatives to pass, thus paving the way for the US federal government to reopen once more and forestall a default that would have posed grave risks to the global recovery.

The Fed’s Beige Book was released today and reported the US economy continues to grow at a ‘modest to moderate’ pace since the last report, although the rate of expansion slowed in four of the federal districts. Improvement in the job market was characterised as modest. Inflation remains subdued according to the report.

Given the economic softness described by the Beige Book, along with the general scarcity of economic data over the last few weeks plus the potential impact of the shutdown, it would appear a taper is off the table for the next FOMC meeting.

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