Most Asian, European markets rally on US debt deal hope

Most markets built on a global rally Friday as traders grow increasingly hopeful that US lawmakers will hammer out a deal to lift the debt ceiling and avert a calamitous default.

But the regional mood was tempered by losses in Hong Kong and Shanghai fuelled by worries over China's economy.

After weeks of lumbering talks on Capitol Hill, congressional leaders appeared ready to put a proposal to lawmakers before the government runs out of cash, said to be around June 1.

In his most upbeat remarks yet on the high-stakes standoff, Republican House Speaker Kevin McCarthy said: "We're not there -- we haven't agreed to anything yet -- but I see the path (where) we could come to an agreement."

McCarthy secured the Speaker's gavel in January by pledging to his party's ultra-conservative Freedom Caucus that any raise in the borrowing limit would only come with an evisceration of the federal budget.

He and Democratic Senate Leader Chuck Schumer were planning to call for a vote in the coming days, and on Friday, a White House official said "steady progress" was being made.

The optimism was shared by other lawmakers, with Texas Republican Kay Granger saying a deal was "close". And Democrat Steny Hoyer said: "I think we are going to get a deal".

But McCarthy ally Patrick McHenry, chairman of the US House Financial Services Committee, warned the two sides were "not close to being done".

Still, all three main indexes on Wall Street rallied, extending the more than one percent gains enjoyed Wednesday.

In Asia, Tokyo raced higher again, building on a recent surge in the Nikkei to a three-decade high even as data showed Japanese inflation continued to sit well above the central bank's target, adding to pressure for it to tighten monetary policy.

Sydney, Seoul, Singapore, Mumbai, Taipei, Manila, Wellington and Jakarta were also well up.

"Although there has been no official pen to paper, there is enough white smoke emanating from Capitol Hill for investors to cheer after policymakers in Washington said that a bill to raise the US debt ceiling may be put on the table next week," said SPI Asset Management's Stephen Innes.

But Hong Kong sank more than one percent owing to a sharp drop in tech firms after ecommerce titan Alibaba reported below-par earnings that reinforced concerns about China's stuttering economy and consumer demand.

Shanghai also fell, and traders are keeping an eye on the central People's Bank of China to see if it unveils any fresh stimulus measures following a string of below-forecast economic figures.

"The recovery in China is slowing down," Ashish Shah, at Goldman Sachs Asset Management, said. "We all expected it wouldn’t be a straight line -- you will go through waves."

London, Paris and Frankfurt were all in the green in early business.

- Eyes on Federal Reserve -

While the debt row continues, investors are also keeping a tab on US Federal Reserve developments as officials prepare for next month's interest rate decision.

Several members of the board have given conflicting views on the way forward, with some warning inflation and employment remained too high, while others wanted to see the effects of more than a year of hiking.

On Thursday, Dallas Fed boss Lorie Logan became the latest to say she was not ready to pause the tightening just yet owing to inflation being three percentage points above the bank's two percent target.

Markets expect the bank to stand pat next month, though traders are increasingly worried another increase could be on the cards.

"The moderation in inflation from nine percent at its peak to five percent at the last print allows the Fed to take a pause," Belita Ong, of Dalton Investments, told Bloomberg Television.

"Especially when coupled with weakness that we’ve seen in the employment data as well as the bank failures that have apparently led to tightening credit conditions."

Investors are also keeping watch on Japan, where G7 leaders are meeting to discuss a range of issues including trade, China and Russia.

- Key figures around 0810 GMT -

Tokyo - Nikkei 225: UP 0.8 percent at 30,808.35 (close)

Hong Kong - Hang Seng Index: DOWN 1.4 percent at 19,450.57 (close)

Shanghai - Composite: DOWN 0.4 percent at 3,283.54 (close)

London - FTSE 100: UP 0.3 percent at 7,767.43

Euro/dollar: UP at $1.0778 from $1.0776 on Thursday

Pound/dollar: DOWN at $1.2403 from $1.2408

Dollar/yen: DOWN at 138.18 yen from 138.68 yen

Euro/pound: UP at 86.89 pence from 86.81 pence

West Texas Intermediate: UP 0.7 percent at $72.39 per barrel.

Brent North Sea crude: UP 0.9 percent at $76.51 per barrel

New York - Dow: UP 0.3 percent at 33,535.91 (close)