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Asian stocks rally, gold falls as Congress sets debt deal

July 31, 2011 |  6:53 pm

Tokyo600 Stocks jumped in Asia as the new trading week began after President Obama announced that Democrats and Republicans reached a deal to raise the U.S. debt ceiling and cut spending.

Gold fell and Treasury bond yields edged up. The dollar was mixed.

The Tokyo stock market’s Nikkei-225 index was up 180 points, or 1.8%, to 10,012 about two hours into the trading day Monday. Australia's main share index was up 1.9%, the South Korean market gained 1.7% and Hong Kong was up 1.5%. [Updated Asian market indexes are available here.]

Obama731 Stocks had been pounded worldwide last week in part on fears that the U.S. might default on its debts. On Wall Street the Dow Jones industrial average fell 4.2% for the week, its worst loss in a year.

Resolving the debt crisis would remove one stumbling block for markets. Now, investors are expected to shift their focus back to the global economy, which has weakened substantially in recent months.

But for the moment, at least, investors are pulling back from some of the classic havens that attracted money as Washington’s debt drama worsened.

Gold futures fell $13 to $1,615 an ounce in electronic trading Sunday evening, after reaching a record high of $1,628.30 on Friday in New York.

The yield on the 10-year Treasury note rose to 2.83% from 2.80% on Friday.

Despite worries about possible default -- something that was never a serious risk in the eyes of many analysts -- Treasury yields had plunged on Friday after the government gave a dismally weak estimate of second-quarter economic growth.

That showed that, even as Congress’ gridlock over the debt ceiling put the world on edge, Treasuries were retaining their role as a place for capital to hide in times of economic uncertainty.

The Treasury market could be tested again if one of the three major credit-rating firms downgrades America's rating from the current AAA grade. It isn't clear whether the budget deal reached on Sunday will be enough to satisfy the ratings firms, which have warned that the U.S. AAA rating was in jeopardy.

-- Tom Petruno


Parties agree to debt-ceiling deal

Debt ceiling Q&A: How we got here

Why the debt drama never pushed markets' panic button

White House fact sheet on the proposed debt-ceiling deal

Top photo: Pedestrians are reflected on a display board showing the current Nikkei share average in Tokyo. Credit: Kim Kyung-Hoon / Reuters

Lower photo: President Obama speaking at the White House on Sunday. Credit: Chip Somodevilla / Getty Images