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Stocks edge higher, but investors remain cautious

By Ken Sweet

Associated Press

Published: Friday, Oct. 4 2013 11:52 a.m. MDT

A man looking a stock exchange board monitor is reflected in the window of a bank in Milan, Italy, Monday, July 18, 2011.

Luca Bruno, Associated Press

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NEW YORK — Stocks moved higher on Wall Street Friday but investors remain focused on Washington, where a partial shutdown of the U.S. government has weighed on the market all week.

The Dow Jones industrial average was up 78 points, or 0.5 percent, at 15,050 as of 12:40 p.m. Eastern. The Standard & Poor's 500 index was up 11 points, or 0.7 percent, at 1,689 and the Nasdaq composite index was up 34 points, or 0.9 percent, at 3,808.

Despite Friday's gains, the trend for the last three weeks in the stock market has been lower. The Dow is down nearly 3 percent since hitting an all-time high on Sept. 18.

Washington appears no closer to resolving the government shutdown or the looming deadline later this month to increase the government's borrowing limit so it can continue to pay its bills. On Friday, Republicans in the House of Representatives said they would continue to pass small spending bills that fund select parts of the government, such as Head Start, but that tactic has found little traction with the Democrats in the Senate.

"The intransigence on both sides has created a very difficult situation," said Stephen Auth, chief investment officer of equities at Federated Investors.

The political noise out of Washington has come to dominate nearly all conversations on Wall Street.

Under normal circumstances, traders would have the government's monthly jobs report to parse through on the first Friday of the month. But the shutdown has forced the Labor Department to postpone the release of September's data for at least the foreseeable future.

And few traders are talking about third quarter corporate earnings reports either, which start next week.

"The market is going to remain completely occupied by Washington until this is resolved," said Bob Doll, chief equity strategist and portfolio manager at Nuveen Asset Management, which oversees $126 billion.

Despite these concerns, both Doll and Auth said they believe the possibility that the U.S. government would willingly default on its debt is remote. House Speaker John Boehner reemphasized on Friday that he would not let the U.S. government default on its debt.

"It's hard to really say how this is going to end, but I think it's unthinkable that it will end with a default of the U.S. government," Auth said.

However, parts of the bond market are starting to show stress as the Oct. 17 debt ceiling deadline nears. Yields for the one-month T-bill that mature around the time the U.S. government is expected to hit its borrowing limit have risen to their highest level in a year. The yield on one-month T-bill was 0.13 percent, up sharply from 0.01 percent five days ago.

Bond market observers said that fund managers for money market funds, who primarily invest in these types of securities, have been selling short-term Treasuries. Fund managers don't want to be stuck holding U.S. government debt maturing around the time the federal government hits its borrowing limit.

In corporate news, shares of the sandwich chain Potbelly soared on their first day of trading following its $105 million initial public offering. Potbelly, trading under the stock ticker "PBPB," jumped $18.78, or 134 percent, to $32.80.

Railroad company CSX fell 31 cents, or 1.2 percent, to $25.36 after an analyst cut his rating on the stock, uncertainty over demand for coal.

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