Wall Street rallied as US Senate leaders agreed to the terms of a deal that would end the government's shutdown and prolong the government's capacity to borrow until February. The House is set to vote on the agreement today.
In afternoon trading in New York, the Dow Jones Industrial Average climbed 1.19 per cent, the Standard & Poor's 500 Index increased 1.23 per cent and the Nasdaq Composite Index added 1.13 per cent.
"Investors are relieved that it looks like we're not going to go over the cliff," Ben Hart, a research analyst at Radnor, Pennsylvania-based Haverford Trust, told Bloomberg News. "It takes the worst case scenario off the table."
The Chicago Board Options Exchange Volatility Index, Wall Street's so-called fear gauge also known as the VIX, plunged 19.5 per cent to 15.02.
Also dropping were rates on US Treasury one-month bills, declining 17 basis points to 0.17 per cent.
"Dealers were avoiding the sector and clearing banks were unwilling to finance a paper that matures before year end, causing a fairly chaotic environment. But new hopes for a deal reversed those trends and short T-bill rates fell in anticipation of a deal," Thomas di Galoma, co-head of fixed income rates at ED&F Man Capital, told Reuters.
On Tuesday, Fitch Ratings said it might downgrade the sovereign credit rating of the US from AAA. "Although Fitch continues to believe that the debt ceiling will be raised soon, the political brinkmanship and reduced financing flexibility could increase the risk of a US default," Fitch warned in a statement.
Shares of Bank of America gained, last up 2.1 per cent, after the lender posted a third-quarter profit.
"Not a bad quarter given the environment with Bank of America showing impressive capital levels and solid execution," Jeff Morris, head of US equities at Standard Life Investments, told Reuters.
Companies reporting today after the close of the market include American Express, IBM and eBay.
Shares of JPMorgan Chase and Goldman Sachs, up 2.7 per cent and 2.2 per cent respectively, led gains in the Dow.
In Europe, the Stoxx 600 Index finished the session with a 0.2 per cent gain from the previous close. The UK's FTSE 100 rose 0.3 per cent and Germany's DAX gained 0.5 per cent. France's CAC 40 shed 0.3 per cent.
UK authorities have now become the latest to open a formal probe into allegations of price manipulation in foreign exchange markets. The Swiss were the first to investigate, followed by US regulators.