GLOBAL MARKETS-Asian stocks rally to 3-wk highs on hopes U.S. avoids default
* Asian stocks track Wall Street higher, yen broadly lower
* All eyes on whether Washington can agree on a debt deal
* Some progress seen, but situation still very fluid
SYDNEY, Oct 11 (Reuters) - Asian stocks jumped to three-week highs on Friday as investors took a chance and cheered perceived progress in Washington to avert a possible default, even though questions remained over whether a deal could be struck.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 1.3 percent, reaching highs not seen since Sept. 19. Tokyo's Nikkei was also 1.3 percent higher.
Gains were seen across the region's emerging markets, with Indonesian shares rising 0.6 percent and the Philippines up 0.9 percent. MSCI's broad emerging benchmark equity index put on 0.8 percent.
The rally in Asia came after U.S. stocks jumped over 2 percent in their biggest one-day gain since Jan. 2 as investors became more confident that squabbling U.S. politicians would at the very least avert a possible U.S. debt default next week.
"The situation is fluid but it seems like progress is being made on averting the worst case scenario. But a short-term solution should be met with short-term enthusiasm," analysts at Nomura wrote in a client note.
Republican lawmakers, who have not passed budget funding, on Thursday offered a plan that would extend the U.S. government's borrowing authority for several weeks, staving off a default that could come as soon as Oct. 17.
While no deal emerged from a meeting at the White House, the two sides said they would continue to talk.
Markets were briefly unsettled after the New York Times reported President Barack Obama had rejected the plan, but Republican Paul Ryan later said Obama had neither accepted or rejected the proposal.
The conflicting news briefly saw U.S. stock index futures fall 0.5 percent, trimming some of Thursday's 2 percent rally. They have since completely recovered to be up 0.1 percent.
"We are watching this very closely like everyone else. Some people have been going into cash. I wish we were all focusing on matters of economics and earnings, but we are unfortunately trading on this soap opera," said Michael Cuggino, president and portfolio manager at Permanent Portfolio Funds.
The current 'risk-on' environment weighed on the safe-haven yen. Both the dollar and euro rose to 1-1/2 week highs of 98.54 yen 133.35 respectively, showing gains of 0.3-0.4 percent on the day.
The euro was steady at $1.3536, holding back the dollar index, which tracks the greenback's performance against a basket of major currencies, from a two-week high set overnight.
Gold nursed overnight losses, wallowing near a one-week low of $1,282.36 an ounce.
Commodities were generally mixed with some extending Thursday's solid gains, while others paused.
Copper put on 0.3 percent to $7,169.00 a tonne, adding to Thursday's 0.6 percent rise, while U.S. crude eased 0.2 percent to $102.76 a barrel, following a 1.4 percent rally.
Traders warned the U.S. fiscal crisis was very fluid and any setback in resolving it could see markets quickly turn tail.
"In the interim, fourth-quarter GDP will surely feel the adverse effects from the slowdown in economic activity and the lack of transparency with respect to economic data releases," said Bonnie Baha, senior portfolio manager at DoubleLine Capital in Los Angeles.
"As a result, under the current set of circumstances, the prospect of a QE tapering is almost certainly off the table for 2013, she added, referring to the Federal Reserve's bond-buying stimulus programme known as Quantitative Easing.