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Stocks rise on hope that Washington gridlock will ease

| Saturday, Oct. 5, 2013, 12:01 a.m.

NEW YORK — Wall Street thinks Washington's gridlock could be easing.

Stocks posted modest gains on Friday, driven by budding optimism among traders that politicians can reach an agreement on the budget and on increasing the government's borrowing limit soon.

“Call it ‘modest optimism,' ” said Frank Davis, director of sales and trading at LEK Securities.

The stock market rose for just the third time in 12 days. The Dow Jones industrial average closed up 76.10 points, or 0.5 percent, to 15,072.58. The Standard & Poor's 500 index rose 11.84 points, or 0.7 percent, to 1,690.50, and the Nasdaq composite index gained 33.41 points, or 0.9 percent, to 3,807.75.

Traders are not expecting a miracle. The rhetoric between Democrats and Republicans remains as hot as ever. But the pressure to end the shutdown and raise the debt ceiling is climbing quickly.

“The thought is that the Republicans and Democrats will soon work this out before Oct. 17,” Davis said, referring to the date the Treasury Department said the government's borrowing authority would be exhausted.

On Friday, House Speaker John Boehner re-emphasized that he won't let the federal government default on its debts. There were reports that Boehner was looking to bring House Republicans together to pass some sort of budget compromise that would include raising the debt ceiling.

Davis noted that it's a positive sign that investors are buying stocks heading into a weekend, especially with how volatile the political climate has been.

Despite Friday's gains, the trend for the past three weeks in the stock market has been lower. The Dow is down nearly 4 percent since hitting an all-time high on Sept. 18.

While remote, the possibility of the United States' failing to pay its bills or creditors remains a deep concern to investors.

“Credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket ... and there might be a financial crisis and recession that could echo the events of 2008 or worse,” the Treasury Department said in a report on Thursday.

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