Wall Street jumps 1 percent in hopes of debt ceiling deal

By Ryan Vlastelica

NEW YORK (Reuters) - U.S. stocks surged more than 1 percent on Wednesday after Senate leaders said they had a deal to reopen the federal government and raise the debt ceiling to avoid a U.S. debt default.

U.S. Senate Majority Leader Harry Reid and Senate Republican leader Mitch McConnell said senators had come to an agreement that will reopen the government through January 15 and raise the debt ceiling until February 7. The House of Representatives planned to vote on the measure later in the day.

The gains brought the S&P 500 index within striking distance of the record intraday high of 1729.86 set on September 19. Trading volume was low, however, as many investors stayed on the sidelines until a resolution of the fiscal issues was official.

"It looks like we'll get through this, which brings the market a bit of a reprieve. Not only is this a relief rally, but we're still in an environment with a very accommodative monetary policy, which provides a tailwind," said Judy Moses, portfolio manager at Evercore Wealth Management in San Francisco.

Gains were broad, with all 10 S&P 500 sectors solidly higher, led by financial stocks, which rose 2 percent. Other groups tied to the pace of economic growth, including energy, also outperformed on the day.

In another sign of easing concerns, the CBOE Volatility index sank 19.4 percent in its biggest daily drop this year. However, the index remains up about 15 percent over the past four weeks.

The Dow Jones industrial average was up 168.75 points, or 1.11 percent, at 15,336.76. The Standard & Poor's 500 Index was up 19.72 points, or 1.16 percent, at 1,717.78. The Nasdaq Composite Index was up 41.89 points, or 1.10 percent, at 3,835.90.

While the issues in Washington continued to be the market's primary driver, analysts said the focus would likely turn to the third-quarter earnings season.

"In general, revenue growth has been challenged, and especially in technology shares there's been low revenue growth," said Moses, who helps oversee $4.7 billion in assets.

With 11 percent of S&P 500 companies having reported, about 57 percent have topped profit expectations, a rate that is below the historical average of 63 percent. The number of companies topping revenue forecasts has also been below the historical average.

Investors will be closely watching for any sign that the government shutdown and debt ceiling impasse had a negative impact on results or outlooks. David Joy, who oversees about $703 billion in assets as chief market strategist at Ameriprise Financial in Boston, said he expected the political uncertainty to erode earnings expectations going forward.

"To me the market has yet to reflect the reality of the economic damage and the psychological damage this has done," Joy said. "I think it's awfully aggressive to think fourth-quarter earnings are going to be up 9 percent, given the shutdown... my instinct is to sell into this rally."

Intel Corp late Tuesday gave a revenue outlook that missed expectations and warned that production of its upcoming Broadwell processors was delayed. However, shares of the Dow component rose 0.9 percent to $23.60 as the stock participated in the broad market rally.

Bank of America Corp swung to a third-quarter profit as provisions for credit losses fell. Shares rose 2.1 percent to $14.54.

Shares of Yahoo fell 0.7 percent to $33.15 a day after the company took down its own forecast for the full 2013 year, trimming the midpoint of its net revenue guidance from $4.5 billion to $4.425 billion.

J.P. Morgan Chase & Co will pay $100 million to settle charges for the "London Whale" trading scandal, the Commodity Futures Trading Commission said on Wednesday. Shares of the Dow component rose 3 percent to $53.88.

(Additional reporting by Steven Johnson; Editing by Kenneth Barry)