Asian stocks hit 3-week highs on hopes of US debt deal

Propelled by gains on Wall Street; MSCI's index of Asia-Pacific shares outside Japan rises 0.7%

Asian stocks jumped to three-week highs on Friday, propelled by gains on Wall Street as investors took a chance and cheered perceived progress to avert a possible US default, even as questions remained over whether a deal could be struck.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.7%, reaching highs not seen since September 23. Tokyo's Nikkei climbed 1.1%, while Australian shares put on 1.8%.

The rally in Asia came after US stocks jumped over 2% in their biggest one-day gain since January 2 as investors grew confident squabbling US politicians would at the very least avert a possible US debt default next week.

Republicans, who have not passed budget funding, on Thursday offered a plan that would extend the US government's borrowing authority for several weeks, staving off a default that could come as soon as October 17.

While no deal emerged from a meeting at the White House, the two sides said they would continue to talk.

Markets were briefly unsettled after the New York Times reported President Barack Obama had rejected the plan, but Republican Paul Ryan later said Obama had neither accepted or rejected the proposal.

The conflicting news briefly saw US stock index futures fall 0.5%, trimming some of Thursday's 2% rally. They have since recovered most of that fall.

"We are watching this very closely like everyone else. Some people have been going into cash. I wish we were all focusing on matters of economics and earnings, but we are unfortunately trading on this soap opera," said Michael Cuggino, president and portfolio manager at Permanent Portfolio Funds.

The dollar index, which tracks the greenback's performance against a basket of major currencies, was little changed at 80.518, having hit a two-week high of 80.595 overnight.

Against the yen, the dollar edged up 0.2% to a 1-1/2 week high of 98.36. The euro stood at $1.3520, up from this week's trough around $1.3485.

Commodities paused after posting solid gains on Thursday. US crude eased 0.2% to $102.80 a barrel, following a 1.4% rally, while copper slipped 0.1% to $7,137.00 a tonne, after a 0.6% rise.

Traders warned the US fiscal crisis was very fluid and any setback in resolving it could see markets quickly turn tail.

"In the interim, fourth-quarter GDP will surely feel the adverse effects from the slowdown in economic activity and the lack of transparency with respect to economic data releases," said Bonnie Baha, senior portfolio manager at DoubleLine Capital.

"As a result, under the current set of circumstances, the prospect of a QE tapering is almost certainly off the table for 2013, she added, referring to the Federal Reserve's bond-buying stimulus programme known as Quantitative Easing.