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NEW YORK (Reuters)-a deal involving up to 3 billion dollars in deficit cuts over a decade that U.S. lawmakers to raise the limit of U.S. debt and avoid default could spur a relief rally on Wall Street stocks and a rise in the Government of the United States produces on Monday.
Senate Democratic Leader Harry Reid said Sunday he hopes to vote tonight on an emerging deal to raise the debt ceiling of 14.3 billion United States dollars according to the U.S. Senate.
The possibility of an agreement raised hopes that a bitter partisan battle, long weeks over cut the deficit of the United States might be close to a close.
"At this point, the markets are perceiving that an agreement will be announced and a vote," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.
The result of an amount of debt will be "a major event in stock," said Krosby. "There will also be an attempt to deconstruct information: where will the austerity. You'll see analysts try to dissect which sectors and companies will be affected by cuts. "
Anxiety over the debt crisis and the U.S. Economic Outlook sent S & P 500 lower last week, resulting in the worst week and month for the index of reference since August last year.
The CBOE volatility index, "Wall Street fear index," rose more than 40 percent, the biggest jump since May.
The United States Treasury prices rallied last week as investors clung to relatively safe debt of the Government of the United States and concluded that a weak economy meant that the Federal Reserve would keep accommodative monetary policy for the foreseeable future.
A stock market rally prompted by a deal the debt ceiling could be restricted, however, outlook uncertain economy of the United States and prospects that might be injured by a ceiling debt plan based on fiscal austerity.
"Once the euphoria of having an affair is over, we will respond to the economy and that image is not a beautiful, said Kevin Giddis, President of fixed income capital markets and Morgan Keegan in Memphis, Tennessee.
Government data released Friday, showed the American economy stumbled badly in the first half of 2011 and came close to contractor in January-March period.
"The market quickly shift the focus towards the employment data released on Friday," said Krosby. "A manifestation of relief could vanish if the data point out that the economy has changed in a stable, rather than sitting in a soft patch.
"The market (is) rapidly data-centric and corporate earnings and the company," said Krosby.
Any relief enjoyed by Stock probably would come at the expense of the market which have benefited from its status as a safe ceiling during the conflict of u.s. Treasury debt. That would bring Us higher returns.
Still, any increase in u.s. Treasury yields resulting from diminished anxiety for the debt ceiling would have limited the troubled Outlook for the u.s. economy, circumstances that appear to ensure that the Federal Reserve's monetary policy will remain accommodative for a long time.
The recent withdrawal of stocks has put them in a precarious position technically as the S & P 500 moves closer to its 200-day moving average, a level that might bring on additional sales if it breaks the index below it.
The benchmark index rebounded successfully level the Friday after the decline of the early morning.
"This is the line in the sand that divides things really going bad-perhaps to things turning really badly," said Paul Mendelsohn, Chief Investment Strategist at Windham financial services in Charlotte, Vermont.
Even if a deal is struck, a possibility remains the United States might lose triple a credit rating if the terms aren't draconinan enough to satisfy the credit rating agencies.
"You hear analysts debate whether or not the package is sufficient to maintain the credit rating agency to downgrade bay in terms of the debt of the Government of the United States," said Krosby.
Investors can still find some comfort corporate profits. According to data from Thomson Reuters Friday, 327 S & P 500 companies that have posted gains, 73 percent reported the results above analysts ' expectations.
Companies due to report earnings this week include Kraft Foods Inc., Clorox Co., Pfizer Inc. and Prudential Financial Inc.
But a weak economy, combined with a debt ceiling Bill that involves more withholding tax could hurt stocks later.
"Companies have been able to compensate for a lack of demand for refinancing their budgets, but in the long term, sledge will be much harder for equities and corporations," said Giddis. "We must improve the development work for companies to do good or to the stock market to do well."
In addition to weak corporate earnings, economic data and developments of U.S. debt ceiling, investors must remain prepared for any developments from the simmering debt crisis in the euro area, which could further increase the investor angst.
"There are two things to keep my eye on-one in Washington and one in Brussels, because the two of them you never know which title risk is going to hit you over the head," said Paul Mendelsohn, Chief Investment Strategist at Windham financial services in Charlotte, Vermont.
(Edited by Bernard Orr)
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