U.S. Stocks Rise as Optimism Grows Over Ending Impasse

U.S.  stocks  rose, with the Standard & Poor?s 500 Index trimming its a weekly decline, as optimism grew that the lawmakers would reach a deal to end the budget impasse and avoid a default on the federal debt.

Facebook Inc. climbed 2 percent after the operator of the world?s most popular social network said it will sell advertising on its Instagram photo service. Union Pacific Corp. declined 0.9 percent after its earnings forecast missed analysts? projections.

Enlarge image

Traders work on the floor of the New York Stock Exchange. Photographer: Scott Eells/Bloomberg

The S& P 500 climbed 0.4 percent to 1,685.06 at 10:26 a.m. inNew York. The  Dow Jones Industrial Average  added 40.84 points, or 0.3 percent, to 15,037.32. Trading in S& P 500 stocks was 15percent below the 30-day average at this time of day.

?Posturing aside, I think a resolution is on its way,? said  Manish Singh, who helps manage $2 billion as head of investments at Crossbridge Capital in  London. ?It?s good that the House speaker is determined to prevent a U.S. default even if the debt-ceiling bill does not have majority Republican support. A federal default is a bigger concern for markets than the budget disagreement.?

The S& P 500 has fallen 0.5 percent this week as the first partial government shutdown in 17 years began on Oct. 1, placing as many as 800,000 federal employees on unpaid leave and closing some services.

House Republicans  prepared to meet at 10 a.m. in  Washington  to discuss a compromise to end the standoff. Speaker  John Boehner  has been telling his party that he won?t allow the U.S. to default on its debt, even if that requires Democratic votes, according to two Republican congressional aides.

Political ?Theatrics?

Pacific Investment Management Co.?s  Bill Gross  and BlackRock Inc.?s  Larry Fink  said the showdown will be resolved without a debt default.

?It?s theatrics posed by politicians to get ratings or to get their way via legislation,? Gross said yesterday at an event in  Beverly Hills,  California.

The budget impasse has raised concern that lawmakers will be unable to make progress on a deal to increase the debt limit. The Treasury has said measures to avoid exceeding the $16.7 trillion cap will be exhausted by Oct. 17 and warned yesterday that a default could have catastrophic consequences that might last decades.

The shutdown delayed the release of the Labor Department?s monthly payrolls report, which was due today. The lack of data is making it harder for Federal Reserve policy makers to assess the health of the economy as they consider when to start paring unprecedented monetary stimulus.

The shortage ?would tend to make me somewhat more cautious? about reducing the monthly pace of bond purchases, Atlanta Fed President  Dennis Lockhart  said yesterday.

Fed Bank of San Francisco President  John Williams  estimated yesterday a two-week government halt would shave 0.25 percentage point off fourth-quarter economic growth.

The S& P 500 has still rallied 18 percent this year, fueled by Fed stimulus and better-than-forecast corporate earnings that have helped the gauge rally more than 150 percent from a March 2009.

The Chicago Board Options Exchange Volatility Index, or VIX, dropped 2.2 percent to 17.28 today, trimming its weekly gain to 12 percent. The equity volatility gauge closed yesterday at the highest level since June 25.

All 10 main groups in the  S& P 500  advanced, with health-care companies advancing 0.7 percent to pace gains. Johnson & Johnson rose 0.8 percent to $87.23.

Dentsply International Inc. jumped 3.3 percent to $44.66 for the biggest gain in the S& P 500. Bank of America raised its rating on shares in the dental supplies maker to buy.

Facebook rose 2 percent to $50.17 after saying it will sell advertising space on Instagram in its first effort to make money from its biggest ever acquisition.

In the most anticipated technology offering since Facebook, Twitter Inc. made public its S-1 prospectus yesterday and said it?s seeking to raise $1 billion. The documents suggested a valuation of $12.8 billion for the microblogging service.

Union Pacific dropped 0.9 percent to $154.02 after the railroad operator said it sees third-quarter earnings of $2.45 to $2.48 a share, compared with the average analyst forecast of $2.56. Operating revenue will increase as much as 4.5 percent, the company said, compared with a 7 percent gain predicted by analysts.

Competitor CSX Corp. slid 1.6 percent to $25.28 for the second-biggest decline in the  S& P 500. (SPX)

To contact the reporter on this story: Namitha Jagadeesh in London atnjagadeesh@bloomberg.net