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LONDON (Alliance News) - UK stocks closed firmly higher Thursday amid a global stock market rally as optimism grew that US lawmakers will agree a short-term increase in the country's debt ceiling, removing any short-term risk that the US could default.
The Republican House leadership proposed a temporary increase in the debt ceiling as a way of breaking a political impasse and deferring a looming US default. In exchange, Republicans would expect a promise of opening a "meaningful dialogue" with President Barack Obama about budget and spending issues, said Representative Cathy McMorris Rogers.
Rogers, a member of the top Republican leadership in the House of Representatives, talked at a press conference after Republicans met behind closed doors to decide the way forward. The time limit on a temporary increase was not clear.
A small delegation of Republicans is to meet later Thursday with Obama to discuss the proposal. Obama had invited the entire Republican membership in the House - 232 members - but Speaker of the House John Boehner rejected the offer.
Stocks across the world rallied on hopes a deal will be struck. The FTSE100 and AIM All-Share both broke three-day losing streaks, closing up 1.5% at 6,430.49 and 1.2% at 780.99, respectively, while the FTSE 250 closed up 1.8% at 14,896.61 after six consecutive down-days.
In Europe, the CAC 40 closed up 2.2% at 4,218.11, and the DAX closed up 2% at 8,685.77, while the Dow, Nasdaq and S&P 500 were up between 1.6% and 1.9% at the close of the European markets.
The continuing political situation in the US overshadowed all other events Thursday, despite a full economic diary.
The Bank of England retained its record-low 0.5% interest rate and the size of quantitative easing at GBP375 billion, as expected. Minutes of the rate-setting meeting will be released October 23.
The euro, meanwhile, got a boost after the European Central Bank's monthly bulletin reiterated the central bank's stance on accommodative monetary policy as long as necessary. The bulletin reaffirmed that the key interest rates would remain at present or lower levels for an extended period of time to support the economic recovery in the region.
The minutes of the Federal Reserve's September 17-18 meeting late Wednesday had revealed that concerns about a government shutdown kept the Federal Reserve from scaling back its monetary stimulus last month. Still, the minutes show most Fed members expect the economy will be strong enough to begin winding down the package this year and ending it completely by the middle of 2014.
In the US, traders largely ignored a report from the Labor Department that indicated a steep increase in initial jobless claims. The data reported a 66,000 jump to 374,000, from 308,000 the week before, way ahead of the consensus forecast of 310,000 cited by FXstreet.com. However, the numbers were believed to be strongly influenced by the ongoing government shutdown, as well as technical issues. The Labor Department said half of the increase in claims was due to a change in computer systems in California.
At an individual UK stock level, GKN, up 2.9% at 353.27 pence, was one of the biggest gainers on the blue-chip index after it poached Adam Walker from publishing group Informa to replace Bill Seeger as chief financial officer. Seeger intends to step down from his position next February and retire from the board in August, while Walker will join GKN's board January 1 as finance director designate and succeed Seeger February 26, giving a good handover period.
Informa shares closed down 1.2% at 503.9153p as a result, one of the biggest losers on the FTSE 250. Walker's departure means the company is undergoing a complete change of top management. Chief Executive Designate Stephen Carter will work with an executive search firm to find a replacement for the CFO who has been with the company for more than five years.
Solgold closed up 33% at 8.65p. The AIM-listed company was the index's top gainer after receiving positive assay results from further drilling at the Cascabel Project in Ecuador. The copper and gold focused mining company said the CSD-13-001 drill hole in the Alpala prospect found copper-gold mineralisation over two zones.
The UK government is looking at the terms of its sale of a stake in Royal Mail after demand for the initial public offering soared, raising fears that small investors may be left out. Launching the IPO last month, the government had said it expected the offering to be priced at between 260 pence and 330 pence a share, giving the company a market capitalization of between GBP2.6 billion and GBP3.3 billion. A broker with knowledge of the situation told Alliance News that demand has been very strong, with the price rising to just above 400 a pence a share in the so-called grey market. Other media reports have said that the offering has been about seven times over-subscribed, with about 700,000 applications for shares made.
In a statement to the stock exchange, the Department of Business, Innovation and Skills said it will announce the details of the allocation policy and the pricing after the market closed Thursday, before conditional dealing in the shares begins Friday.
In Friday's data calendar, German consumer and wholesale price figures are scheduled for 0700 BST, with Italian CPI data at 0900 and 1000 BST. US PPI is expected at 1330 BST.
By James Kemp; jameskemp@alliancenews.com; @jamespkemp
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