Wall St ends sharply higher, dollar hits seven-week high as debt limit talks advance

© Reuters. A view of a giant display of stock indexes in Shanghai, China, October 24, 2022. REUTERS/Aly Song/File Photo

By Stephen Culp

NEW YORK (Reuters) - Wall Street rallied to a higher close on Wednesday, gathering momentum throughout the afternoon trading, and the dollar touched a six-week high as regional banks surged and negotiations in Washington over raising the debt ceiling progressed.

All three major U.S. stock indexes rallied to end up more than 1% as hopes of a deal to raise the debt limit helped investors look past dismal forecasts from retailers Target Corp (NYSE:TGT) and Home Depot Inc (NYSE:HD).

Regional banks provided some lift, with the KBW Regional Banks index surging 7.3% amid waning concerns of a liquidity crisis in the sector.

Debt ceiling negotiations, which have become a growing preoccupation of market participants, appeared to be moving in the right direction, with vows from U.S. President Joe Biden and Republican House of Representatives Speaker Kevin McCarthy that the U.S. will avoid a catastrophic default.

"What we're seeing today is positive comments saying progress is being made toward a debt ceiling deal, and that’s given the market reason to put money back to work," said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut.

"I think we'll get past the beginning of June before there’s a deal. But for today, the sun is shining and the birds are chirping."

The Dow Jones Industrial Average rose 408.63 points, or 1.24%, to 33,420.77, the S&P 500 gained 48.87 points, or 1.19%, to 4,158.77 and the Nasdaq Composite added 157.51 points, or 1.28%, to 12,500.57.

European shares closed lower as sentiment was weighed down by downbeat earnings and concerns over the possibility of a U.S. debt default.

The pan-European STOXX 600 index lost 0.15% and MSCI's gauge of stocks across the globe gained 0.60%.

Emerging market stocks lost 0.26%. MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.5% lower, while Japan's Nikkei rose 0.84%.

The dollar rose to a seven-week high against a basket of world currencies, boosted by optimism that a deal to raise the debt ceiling and a round of solid economic data.

"The dollar is telling you that the people who trade forex don't believe a default is going to happen," Pavlik said.

The dollar index rose 0.28%, with the euro down 0.21% to $1.0838.

The Japanese yen weakened 0.89% versus the greenback at 137.63 per dollar, while sterling was last trading at $1.249, up 0.04% on the day.

U.S. 10-year Treasury yields rose after upbeat housing data extended their gain as U.S. credit default fears waned.

Benchmark 10-year notes last fell 7/32 in price to yield 3.5754%, from 3.549% late on Tuesday.

The 30-year bond last rose 1/32 in price to yield 3.8711%, from 3.873% late on Tuesday.

Oil prices rebounded on a brightened demand outlook and optimism over a debt ceiling resolution.

U.S. crude jumped 2.78% to settle at $72.83 per barrel, while Brent ended at $76.96 per barrel, up 2.74% on the day.

Gold pulled back in opposition to the rising dollar after remarks from Federal Reserve officials suggested any talk of rate cuts would be premature.

Spot gold dropped 0.3% to $1,982.41 an ounce.