* Obama signs bill into law, reopens government
* U.S. Treasury prices rise on debt ceiling news
* European shares seen softer as investors book profits
By Ian Chua
SYDNEY, Oct 17 (Reuters) - Share markets from Australia toJapan drove their indexes to levels not seen in weeks afterlegislators produced a last-minute deal to lift the U.S.government's borrowing limit and dodge a potentiallycatastrophic debt default.
MSCI's broadest index of Asia-Pacific shares outside Japan hit a fresh five-month high and was last up 0.6percent. Tokyo's Nikkei advanced 0.8 percent, havingearlier scaled a three-week peak.
President Barack Obama signed the bill into law on Thursday,averting a deadline by which the Treasury Department said itsborrowing authority would have been exhausted.
U.S. stock index futures dipped in whatappeared to be a buy-on-the-rumour/sell-on-the-fact move, havingalready rallied 1.3 percent overnight.
In an unexpected turn, European stocks were thought likelyto open slightly lower with investors tempted to lock in profitsfrom a late rally on Wednesday, when signs of an imminent dealemerged.
Financial spreadbetters predict Britain's FTSE 100 Germany's DAX and France's CAC 40 would allopen around 0.2 percent lower.
"It sounds counter-intuitive to have such a deflatedreaction but those who took a speculative punt on a deal beingdone will be looking to cash in their chips this morning,"Jonathan Sudaria, a trader at Capital Spreads in London, wrotein a client note.
The dollar index, which tracks the greenback'sperformance against a currency basket, slipped a touch to80.362, pulling back from a one-month high of 80.745.
U.S. Treasuries took the announcement in their stride aswell with U.S. Treasury futures gaining 0.1 percent,while the 10-year benchmark yield slipped to 2.65percent from around 2.68 percent late in New York.
KICKING THE CAN
The deal, however, does not resolve the fundamental issuesof spending and deficits that divide Republicans and Democrats.It funds the government until Jan. 15 and raises the debt limitthrough to Feb. 7, so global markets face the possibility ofanother showdown in Washington early next year.
"The can has been kicked further down the road...the resetbutton has been pushed and we will go thought this all again intwo months time," said Evan Lucas, market strategist at IG inMelbourne.
But Lucas expected "normal trading" to return over thecoming days as the earnings season gets underway.
Still, the resolution couldn't have come at a better timefor companies such as South Korean train maker Hyundai Rotem,which recently launched an initial public offering in what couldbe the country's biggest share sale so far this year.
In the currency market, the improved risk appetite sawinvestors favour high-yielding currencies including theAustralian dollar.
The Aussie dollar hit a 4-month high of $0.9574 andscaled a 4-1/2 month peak of 94.48 yen. It has sincestepped back a notch to $0.9541 and 93.89 yen.
Against the yen, the U.S. dollar briefly reached athree-week high of 99.01, before strong selling interestknocked it back to 98.44. The euro edged up 0.1 percent to$1.3549.
Among commodities, copper slipped 0.5 percent to $7,224 atonne, while gold traded at $1,279 an ounce --struggling to gain momentum in the absence of safety bids. U.S.crude dithered at $102 a barrel.
Many traders are already trying to get past the fiscal dramaand looking to see when a backlog of U.S. economic data,including the September payrolls, will be released when thepartial government shutdown is lifted.
With the manoeuvring in Washington just about over,investors will re-focus on economic news and the timeline forthe U.S. Federal Reserve's tapering of its bond-buying programme-- a major driver of global assets in recent months.
The Fed stunned markets last month by opting to delay thestart of stimulus reduction.
"It will be some time before we are able to get a clear readon the U.S. labour market post-shutdown," said Westpac economistElliot Clarke.
"But a logical expectation given recent events and the lackof a long-term solution is that we will see soft employmentgrowth through the remainder of 2013 and into 2014."
That, Clarke said, is likely to see the Fed maintain adovish tilt, adding the U.S. central bank will very likely haveto downgrade its 2013 and 2014 growth forecasts given the impactof the U.S. government shutdown -- delaying the start of atapering of stimulus by the Fed.
The Fed has two more policy meetings scheduled for 2013, thefirst on Oct. 29-30 and the second on Dec. 17-18.
- Budget, Tax & Economy
- President Barack Obama