US STOCKS-Wall St rebounds as gov't shutdown seen short-lived

Reuters

* Investors see buying opportunity if shutdown not prolonged

* Apple shares jump on Icahn dinner with CEO Cook

* U.S. seeks delay in trial on U.S. air, AMR deal due toshutdown

* Indexes up: Dow 0.4 pct, S&P 0.7 pct, Nasdaq 0.9 pct

By Angela Moon

NEW YORK, Oct 1 (Reuters) - U.S. stocks kicked off a newmonth and a new quarter with gains on Tuesday as investors, fornow, appeared confident that the first partial governmentshutdown in nearly two decades would be short-lived.

After declining seven out of the past eight sessions onconcerns about a possible shutdown, Wall Street rebounded onTuesday as investors viewed the pullback as a buying opportunityin the absence of an extended shutdown.

Trading volume totaled about 6 billion shares on the NewYork Stock Exchange, the Nasdaq and the NYSE MKT, lower than theaverage daily closing volume of about 6.3 billion this year.

Congress missed a midnight deadline to agree on a spendingbill, resulting in up to 1 million workers being put on unpaidleave. A fight over President Barack Obama's healthcare law wasat the center of the impasse.

The Democratic-led U.S. Senate on Tuesday voted to killRepublicans' latest attempts to modify an emergency governmentfunding bill, stripping proposed amendments from the spendingbill and sending back to the House a "clean" bill that wouldfund government agencies until Nov. 15.

"This time around, the markets have been so blissfullyunconcerned that this hasn't been a problem. It could start tobite now, of course. But for me, the main story is the number ofpeople not receiving paychecks or producing output," said EricLascelles, chief economist at RBC Global Asset Management inToronto.

Lascelles said he estimates that each week the shutdownpersists will shave about 0.1 percentage point fromfourth-quarter GDP.

The Dow Jones industrial average was up 62.03 points,or 0.41 percent, at 15,191.70. The Standard & Poor's 500 Index was up 13.45 points, or 0.80 percent, at 1,695.00. TheNasdaq Composite Index was up 46.50 points, or 1.23percent, at 3,817.98.

In the latest economic data, the Institute for SupplyManagement's manufacturing index came in at 56.2, up from theprevious month and above expectations for a reading of 55.

But with the closure of federal government agencies, therelease of a report on construction spending in August wasdelayed. If no deal is reached by Friday, the closely watchedpayroll report will also be delayed.

The report on private sector hiring in September by payrollsprocessor Automatic Data Processing will be released onWednesday at 8:15 a.m. (1215). Weekly initial jobless claimsdata due on Thursday will also be released as scheduled.

"We are thinking that it may go two weeks and get close tothe October 17 date. Then the whole thing ratchets up inintensity. The debt limit fight and the budget fight are relatedin a way, so they provide each side with more pressure points,"said David R. Kotok, chief investment officer at CumberlandAdvisors, in Sarasota, Florida.

Supporting the Nasdaq, shares of Apple Inc rose 2.4percent to $487.96 on news that billionaire activist investorCarl Icahn "pushed hard" for a share buyback when he had dinnerwith Apple chief executive Tim Cook on Monday.

The U.S. Department of Justice, which is fighting a proposedmerger of US Airways Group Inc and American Airlinesparent AMR Corp, asked a judge on Tuesday to postponea trial in the case, saying the shutdown would prevent its stafffrom working. Shares of US Airways were up 3.9 percent at $19.69while AMR rose 8.3 percent to $4.45.

Merck & Co announced a plan to cut annual operatingcosts by $2.5 billion by the end of 2015 and eliminate 8,500jobs. Shares rose 2.4 percent to $48.74, one of the biggestboosts to the S&P 500.

Wall Street has managed to avoid steep downside duringsimilar incidents. During the federal government shutdown fromDec. 15, 1995 to Jan. 6, 1996, the S&P 500 added 0.1 percent.During the Nov. 13 to Nov. 19, 1995, shutdown, the benchmarkindex rose 1.3 percent.

Investors were also eyeing the tone of negotiations as apossible template for the upcoming debate on lifting the debtceiling in mid-October, which could result in a default on U.S.debt if not passed. The debt limit issue is considered to have abigger impact on markets.

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