Concern about the U.S. government's ability to avoid a default boosted gold for a 10th straight day on Friday, while stocks rose after strong corporate earnings from companies including Google. Investors' search for safe havens on fears over the outcome of debt talks also pushed up U.S. government bond prices.
An acrimonious stalemate between President Barack Obama and Republicans deepened on Friday in their negotiations over a plan to raise the debt ceiling while cutting the deficit.
Congress must raise the $14.3 trillion limit on America's borrowing by Aug. 2 or the government will run out of money to pay all its bills. The White House and Republicans are wrangling over spending cuts and higher taxes in addressing how to bring down the deficit.
The two major ratings agencies warned they will strip the United States, the world's biggest economy, of its top-notch credit rating if it does not increase its borrowing limit to avoid a default.
"Everything that's bad is good for Treasuries even if there's a default," said Thomas Roth, executive director of U.S. government bond trading at Mitsubishi UFJ Securities USA Inc in New York.
There is a growing, though far from consensus, view that while a United States default would hurt the credit-worthiness of Treasuries, it would devastate stocks and risky investments even more, making investors scramble for Treasuries to store cash.
"Treasuries look the best of a bad lot. The U.S. will make good on its payments despite a short-term disruption," said Anthony Valeri, fixed income strategist at LPL Financial in San Diego, which manages $280 billion in assets.
On Wall Street, the Dow Jones industrial average rose 42.61 points, or 0.34 percent, to end at 12,479.73. The Standard & Poor's 500 Index was up 7.27 points, or 0.56 percent, at 1,316.14. The Nasdaq Composite Index was up 27.13 points, or 0.98 percent, at 2,789.80.
Google's earnings beat the most bullish forecasts late on Thursday, driving its stock up 13 percent to $597.62, making it the top gainer in the Nasdaq 100.
Energy and tech shares led the day's gains. The S&P energy sector index rose 2.3 percent, while the S&P info technology sector index gained 1.6 percent.
The FTSEurofirst 300 index of leading European shares ended down 0.2 percent, while the MSCI All-Country World Index rose 0.2 percent.
Also gaining was spot gold, which was up 0.3 percent at $1,591.50 an ounce. It failed to hit a new peak after rallying to all-time highs in the previous two sessions, but stayed near the record of $1,594.16 hit on Thursday.
"The longer the debt talk drags on, the more you would want to own a safe haven like gold. The crude oil market is also rallying quite nicely, and that's a big element in support for gold," said James Steel, chief commodity analyst at HSBC.
