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Markets shored up by US debt deal hopes

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PAN PYLAS | October 15, 2013 10:34 AM EST | AP

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LONDON — LONDON (AP) — Hopes that lawmakers in Washington are inching toward a key budget deal shored up markets Tuesday, but with only two days before a deadline to raise the U.S. debt ceiling, the mood was cautious.

A failure to raise the debt ceiling by Oct. 17 could cause the U.S. to default on some of its debts — a development that analysts say could derail the U.S. economic recovery and cause mayhem in financial markets around the world.

Investors have been remarkably sanguine in recent days as they seem to expect that a deal will eventually be agreed between Republicans in Congress and the White House because no politician wants to be blamed for a default.

"The history of U.S. fiscal stalemates is that typically a last-minute deal is reached," said Neil MacKinnon, global macro strategist at VTB Capital.

In Europe, the FTSE 100 index of leading British shares was up 0.7 percent at 6,555 while Germany's DAX rose 0.9 percent to 8,806. The CAC-40 in France was 0.8 percent higher at 4,257.

In the U.S., the Dow Jones industrial average was down 0.2 percent at 15,269 while the broader S&P 500 index fell the same rate to 1,708.

All eyes were on Washington as Republican leaders in the House of Representatives unveiled their own plan Tuesday to counter an emerging Senate deal. The House bill would fund the government through Jan. 15 and give the Treasury the ability to borrow normally through Feb. 7.

Earlier, the mood in Asia was largely positive, too. Japan's Nikkei 225 closed up 0.3 percent at 14,441.54 while Hong Kong's Hang Seng gained 0.5 percent to 23,336.52. South Korea's Kospi closed 1 percent higher at 2,040.96. China's Shanghai Composite index bucked the trend, down 0.2 percent at 2,233.41.

The focus remained on developments in Washington in other financial markets as well. In currencies, the dollar was largely being supported by hopes over a debt deal. The euro was down 0.5 percent at $1.3492. However, the dollar was down 0.1 percent at 98.56 yen.