Created on Wednesday, 16 October 2013 Written by STEVE ROTHWELL, AP Markets Writer
NEW YORK (AP) — The stock market rallied Wednesday afternoon after the Senate announced a last-minute agreement to avoid a U.S. default and reopen the government.
Senate leaders announced the agreement following a partial, 16-day government shutdown. Congress raced to pass the measure by day's end.
The Dow Jones industrial average rose 174 points, or 1.2 percent, to 15,342 in early afternoon trading.
Despite the gridlock, stock investors have stayed largely calm throughout the latest twists in the current fiscal drama in Washington. Even before Wednesday's news, the Standard & Poor's 500 index and the Dow Jones industrial average were up for the month.
"Investors have become, unfortunately, accustomed to some of the dysfunction," said Eric Wiegand, a senior portfolio manager at U.S. Bank. "It's become more the norm than the exception."
The Standard & Poor's 500 index rose 19 points, or 1.2 percent, to 1,717 Wednesday, just eight points from its all-time high of 1,725 set Sept. 18.
The Nasdaq composite rose 41 points, or 1 percent, to 3,835.
Without a debt deal, the U.S. would have hit a Thursday deadline after which it could no longer borrow money to pay its bills, increasing the chance of a default on government debt.
The market for U.S. treasury bills reflected relief among bond investors. The yield on the one-month T-bill dropped to 0.20 percent from 0.40 percent Wednesday morning, an extraordinarily large move. The decline means that investors consider the bill to be less risky.
The yield on the 10-year bond edged down to 2.71 percent from 2.74 percent Tuesday. Yields on longer-term U.S. government debt haven't moved as much as those on short-term debt because investors believed that the government would work out a longer-term solution.
The feeling among traders in recent days was that panicking and pulling money out of the market would hurt their investments.
In the summer of 2011, the S&P 500 index plunged 17 percent between early July and early August as lawmakers argued over raising the debt limit and Standard & Poor's cut the U.S. credit rating from 'AAA,' its highest ranking. The market later recovered.
Stocks also slumped in the last two weeks of 2012 as investors fretted that the U.S. would go over the "fiscal cliff" as lawmakers argued over a series of automatic government spending cuts. Stock also rebounded.
Among stocks making big moves:
— Mattel gained 96 cents, or 2.2 percent, to $42.51, after the company's third-quarter net income rose thanks to high demand for dolls like Monster High, Barbie and American Girl. The results were better than Wall Street analysts had forecast.
— Bank of America rose 30 cents, or 2.1 percent, to $14.55 after the second-largest U.S. bank reported a surge in third-quarter earnings.
— Stanley Black & Decker plunged $12.81, or 14.3 percent, to $76.76 after the company lowered its profit forecast for the year, citing slower growth in emerging markets and a hit from the U.S. government shutdown.