World markets rise as momentum grows in debt talks

Another day, another mood as there were signs of progress toward agreements on how to deal with an overload of debt on both sides of the Atlantic.

The White House said it saw momentum for a "balanced" deficit deal, but denied reports that President Barack Obama and Republican US House of Representatives speaker John Boehner were close to a pact, according to Reuters.

Earnings that surpassed expectations such as released by Morgan Stanley, which soared 11 per cent after reporting a smaller-than-expected loss, underpinned the optimism and willingness to commit fresh funds.

"You've got a bunch of items that at least short term have given buyers reason to buy and some sellers reason to step away from selling, [giving] a lift to the market," Rick Bensignor, chief market strategist at Dahlman Rose in New York, told Reuters.

"The fact financials are getting a bid and outperforming for a couple of days, the potential for some type of temporary workout for the Greek default situation and the fact that we seemingly here in the US are getting potentially closer to solving the problem of the debt ceiling" are helping equities, he said.

In afternoon trading, the Dow Jones Industrial Average rose 1.30 per cent, the Standard & Poor's 500 Index gained 1.45 per cent and the Nasdaq climbed 0.84 per cent.

While the US was seen as making progress on its debt talks, Standard & Poor's reiterated on Thursday it saw real risk that future US government deficits might meaningfully miss discussed targets and that there was a 50-50 chance the nation's top credit rating could be cut within three months, perhaps as soon as August, according to Reuters.

If an agreement was reached to raise the debt ceiling but nothing meaningful was done in terms of deficit reduction, the US would likely have its rating cut to the AA category, S&P said.

"While banks and broker-dealers wouldn't likely suffer any immediate ratings downgrades, we would downgrade the debt of Fannie Mae, Freddie Mac, the 'AAA' rated Federal Home Loan Banks, and the 'AAA' rated Federal Farm Credit System Banks to correspond with the US sovereign rating," S&P said in its report.

Across the Atlantic, investors welcomed a draft plan by European officials to provide cheap loans to Greece and other debt-laden euro zone countries in an effort to contain the crisis. Euro-area leaders may accept a temporary Greek default, officials said.

The euro traded 1.1 per cent higher at US$1.4371 and rose 0.8 per cent to 1.1744 Swiss francs.

The benchmark Stoxx 600 Index rose 1 per cent.

Measures considered include expanding the role of the European Financial Stability Facility rescue fund to help states sooner, recapitalise banks and intervene in the secondary bond market, a draft summit statement obtained by Reuters showed.

Euro-zone governments may guarantee Greek bonds to make it easier for Europe's central bank to accept a default of the indebted nation after months of opposition to such a move, Bloomberg reported, citing two officials familiar with the talks.

On the commodity front, copper futures dropped after preliminary data showed a gauge of Chinese manufacturing declined to a 28-month low this month.

Copper futures for September delivery shed 1.2 per cent to close at US$4.3835 at 1.09pm on the Comex in New York.

"China has been struggling with tight credit for some time," Julien Garran, an analyst at UBS in London, told Reuters. "We've also got Europe deteriorating and slowing demand in the West, as well as in other emerging markets. For us, that means the fundamentals are turning down."

Oil rose, underpinned by the International Energy Agency's decision against releasing more stockpiles.

The IEA said on Thursday that none of its 28 members had asked for more oil to be released, including the U.S., one of the architects of the first release a month ago.

Brent was 57 cents higher at US$118.72 a barrel at 12.46am EDT, while US crude advanced US$1.44 to US$99.84 a barrel.