U.S. stock-index futures surged, indicating the Standard & Poor’s 500 Index may rebound from its worst weekly loss in a year, amid optimism lawmakers and President Barack Obama are close to an agreement to raise the federal debt limit and avoid a default.

S&P 500 futures expiring in September rallied 1 percent to 1,304 at 7:01 a.m. in Tokyo. Dow Jones Industrial Average futures climbed 145 points, or 1.2 percent, to 12,223. The U.S. dollar strengthened 0.7 percent against the yen and 1.1 percent versus the Swiss franc. IntercontinentalExchange Inc.’s Dollar Index, which measures the currency against six U.S. trading partners, fell in each of the past three weeks.

Senate Majority Leader Harry Reid approved a tentative agreement with House leaders and the Obama administration to raise the borrowing limit pending approval by fellow Senate Democrats, according to a spokesman. Congressional leaders and the Obama administration negotiated to finish the details of the agreement, paving the way for possible votes in the Senate and House. Senate Republican leader Mitch McConnell said that congressional negotiators andObama are “very close” to a deal, having made “dramatic progress” on July 30.

“They are going to pull a rabbit out of the hat,” Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, said in a telephone interview. His firm manages $275 billion. “The word default that’s being thrown around is being used inappropriately. I don’t think the U.S. in any way, shape or form is going to default. The collateral damage would be calamitous.”

Third Monthly Loss

The S&P 500 posted a third straight monthly loss in July, the longest streak since 2008, amid speculation Republicans in the U.S. House would fail to reach a compromise with the Senate, controlled by Democrats, and President Barack Obama to boost the nation’s ability to borrow by an Aug. 2 deadline. That concern helped overshadow a second-quarter earnings reporting season in which per-share profits have exceeded analysts’ projections at 78 percent of S&P 500 companies that reported so far.

Republicans and the White House were nearing agreement on another plan that would raise the $14.3 trillion debt limit while cutting $1 trillion in spending and charging a special committee with proposing additional savings of up to $1.8 trillion, according to people familiar with the discussions. Still, White House Communications Director Dan Pfeiffer said in a Twitter message that the two sides have “important issues to work out.”

There are still issues to be ironed out, including the final details of the enforcement mechanism designed to compel future deficit reduction, a Republican aide said, speaking on condition of anonymity.

AAA at Stake

Both S&P and Moody’s Investors Service are weighing a reduction of the U.S. credit rating. The impasse has boosted the chance S&P will cut the U.S. credit rating from AAA within three months to 50 percent, the ratings company said last month.

Even if the country defaults on some obligations after Aug. 2 and pays bondholders, S&P said short- and long-term interest rates would rise by 0.50 percentage point and 1 point, respectively. Ten-year Treasuries surged last week, driving yields as low as 2.77 percent on July 29, the lowest level since Nov. 30.

U.S. stocks fell five straight days, driving the S&P 500 down 3.9 percent to 1,292.28 for its biggest weekly decline in a year. The retreat brought the benchmark gauge closer to its average price of the last 200 days of about 1,285. A drop below that level could trigger further losses, according to analysts who study charts to make forecasts.

Stocks also fell last week after government reports showed orders for durable goods unexpectedly decreased and the U.S. economy grew less than forecast in the second quarter.

The Morgan Stanley Cyclical Index of companies most-tied to economic growth decreased 5.6 percent, the most in a week since July 2010. The Dow Jones Transportation Average had the biggest loss since August, falling 4.5 percent. Read More