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Asian stocks and US stock futures clambered back into positive territory on Wednesday as hopes grew that frantic talks in Washington to avert a US debt default could lead to a deal just before the October 17 deadline to lift the borrowing limit.
US senate leaders could announce an agreement soon to raise the debt ceiling and reopen the government, a Senate aide said. Discussions were underway in which the Republican-controlled House, if it cooperated, could help speed up passage of any deal before the deadline.
MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.1 percent, turning around from a negative start. It was near a five-month peak set on Tuesday. Tokyo's Nikkei was a touch firmer.
US S&P 500 e-mini futures rallied 0.7%, recouping almost all of Tuesday's losses.
But traders cautioned that markets would remain volatile.
"With just 30 hours to go until the deadline, nerves will be playing on traders' minds as they will continue to be on US political headline-watch. As a result, trade will be extremely choppy until we get an outcome," said Stan Shamu, market strategist at IG in Melbourne.
If Washington doesn't reach a deal by October 17, the government by law will no longer be able to add to the national debt, and will have to rely on incoming revenue and about $30 billion in cash to pay the nation's many obligations.
That money is expected to run out quickly and Washington would start missing payments in the weeks ahead. A global financial crisis could follow if investors decide that US debt, used as collateral for trillions of dollars in financial deals, were no longer worth holding.
Fitch Ratings warned on Tuesday that it could cut the United States' prized AAA credit rating.
Given the dire consequences of a US default, markets have been surprisingly resilient. Some traders say investors have found it hard to price in an Armageddon scenario, and expect that there will be a last-minute solution.
Hopes of an imminent breakthrough knocked the safe-haven yen down. The dollar climbed 0.4% to 98.53, while the euro advanced 0.3% to 133.19.
That helped the dollar index, which tracks the greenback's performance against a basket of currencies, firm slightly to 80.555, moving back towards a one-month high of 80.703 set on Tuesday.
"Like a competitive basketball game where nothing happens before the fourth quarter, the current budget negotiations are coming down to the wire," analysts at JPMorgan wrote in a client note.
