United States stocks closed higher as investors held out hope that Washington lawmakers will reach a deal to raise the debt ceiling, as weekend negotiations spilled into Monday.
The Dow Jones Industrial Average rose 64 points, or 0.42%, to close at 15,301, reversing a loss of much as 101 points earlier in the session. The Dow had climbed 461 points over the previous three sessions amid signs that a deal to raise the nation's borrowing limit and end the government shutdown was in sight.
The S&P 500 index rose 7 points, or 0.41%, to 1,710, while the Nasdaq Composite Index was up 23 points, or 0.62%, to 3,815.
US President Barack Obama delayed a meeting with Senate and House leaders scheduled for Monday afternoon local time, as negotiations that began over the weekend on raising the nation's borrowing limit continued. Senate leaders expressed optimism about a potential deal as the Treasury's Thursday deadline for raising the debt ceiling approaches.
Although investors worry about the consequences of a default on US debt--many believe such an event could be disastrous for stocks--most market participants still feel that Washington will avert a government cash crunch this week.
"We'll see something on the debt ceiling on Thursday, but it will be very short term and it will be done at the very last minute, just to create more time and not solve any issues," said Ryan Meliker, senior analyst for equity research, at investment bank MLV & Co. Mr. Meliker said interest rates would likely spike if a default were to occur, while stocks that are tied to interest rates would suffer.
Still, some investors have positioned themselves for a volatile period in the markets this week. Several large financial firms have been shedding short-term government debt because of worries that there won't be a deal by Thursday.
Other investors were girding for stock-market declines using strategies like hedging and paring back some riskier holdings, said Ed Lashinski, director of global strategy and execution for RBC Capital Markets' futures group.
"The market is like the old Road Runner cartoons ... It's run off the cliff, and it just hasn't looked down yet," he said.
John Buckingham, chief investment officer of AFAM Capital, said his firm holds a larger cash position than normal. "That's what we're doing in terms of risk mitigation," he said.
But Mr Buckingham, whose firm manages $US750 million ($791 million), said he is optimistic that the raft of earnings news this week would offer opportunities to get back into the market. "Finding bargains is harder than it's been, but they're still out there," adding that he bought some stock of Whirlpool, which was down 6% on Monday.
Many investors say it is unclear how firm Thursday's deadline truly is. The Treasury has said that on Thursday it will be left with $US30 billion in cash to pay the government's bills. That amount that could run out in a week or two.
Tim Hopper, chief economist at TIAA-CREF, said the Treasury will likely prove able to avoid a default on US debt for a few weeks after Thursday's deadline. "When you get 'zero' is going to be sometime after the 17th," he said, noting that several hefty interest payments are due later in the month. "Projections that we've seen and payment schedules that we've seen indicate something toward the end of October is when you have to make tough decisions."
Mr Hopper said he still believes Washington will reach an agreement to avoid a default on Treasury debt, and said investors should ride out the current bout of market volatility.
The standoff in Washington has largely overshadowed other events in the market, including the large number of quarterly earnings set for this week. Companies in the S&P 500-stock index are on pace for 0.8% of third-quarter earnings growth from the previous year, a slowdown from the first quarter's 3.4% growth and the second quarter's 2.3% of growth, according to FactSet.
There are no economic reports scheduled for release Monday. The Treasury market is closed for the US Columbus Day holiday.
October gold futures climbed 1.3% to $US1,285 an ounce. Gold futures fell 3.2% last week to settle on Friday at a three-month low. November crude-oil futures lost 0.5% to $US101.56 a barrel.
The US dollar inched lower against the euro but was little changed against the yen.
Overseas markets were mixed, as jitters over the dysfunction in Washington spread around the globe. The Stoxx Europe 600 finished 0.2% higher, wiping out an early intraday loss.
Australia's S&P ASX 200 fell 0.4%, while China's Shanghai Composite eked out a 0.4% gain. Japanese markets were closed for a holiday.