* U.S. government shutdown could hurt markets if prolonged
* Merck shares rise on announcement of job cuts
* Automakers post monthly sales results
* Indexes up: Dow 0.45 pct, S&P 0.79 pct, Nasdaq 1.03 pct
By Chuck Mikolajczak
NEW YORK, Oct 1 (Reuters) - U.S. stocks rose on Tuesday after limping to the end of the third quarter, but investors appeared confident a deal could be reached in Washington to settle a partial shutdown of the U.S. government.
Congress missed a midnight deadline to agree on a spending bill, resulting in up to 1 million workers being put on unpaid leave. A bipartisan fight over President Barack Obama’s healthcare law was at the center of the political impasse.
The Democratic-led U.S. Senate on Tuesday voted to kill Republicans’ latest attempts to modify an emergency government funding bill, stripping proposed amendments from the spending bill and sending back to the House a “clean” bill that would extend funding for government agencies until Nov. 15.
Shares dropped on Monday as the deadline approached without any apparent progress in breaking the stalemate, giving the S&P 500 its seventh decline in the last eight trading days of September. However, some market participants viewed any pullback as a buying opportunity in the absence of an extended shutdown.
“If this (shutdown) is short like most of them have been, it won’t really change much as far as the fundamentals. Thus we are still pretty bullish on U.S. stocks,” said Mike Serio, regional chief investment officer for Wells Fargo Private Bank in Denver, Colorado.
“However, if this does go on for a long time, we may have to go back and revisit our GDP growth number at some point.”
Investors were also eyeing the tone of negotiations as a possible template for the upcoming debate on lifting the debt ceiling in mid-October, which could result in a default on U.S. debt if not passed. The debt limit issue is considered to have a bigger impact on markets.
“The more important event is going to be the debt ceiling. If for some reason they cannot do that, then we definitely will have to rethink our GDP number,” said Serio.
The Dow Jones industrial average rose 68.06 points or 0.45 percent, to 15,197.73, the S&P 500 gained 13.33 points or 0.79 percent, to 1,694.88 and the Nasdaq Composite added 38.734 points or 1.03 percent, to 3,810.214.
Volume was modest, with about 2.6 billion shares traded around the halfway point of the session.
Merck & Co announced a plan to cut annual operating costs by $2.5 billion by the end of 2015 and eliminate 8,500 jobs. Shares rose 1.2 percent to $48.77 as one of the biggest boosts to the S&P 500.
Walgreen Co reported fourth-quarter earnings that exceeded expectations, helped by a rise in generic drug sales. Shares gained 4.4 percent to $55.15.
Ford Motor Co advanced 2.3 percent to $17.26 after the company reported a 6 percent increase in its September sales. General Motors edged up 0.1 percent to $36.02 following its sales results.
In the latest economic data, the Institute for Supply Management’s manufacturing index came in at 56.2, up from the previous month and above expectations for a reading of 55.
The release of the government’s report on construction spending in August, which had been scheduled for 10 a.m, was delayed because of the shutdown. If no deal is reached by Friday, the closely watched payroll report will also be delayed.
The report on private sector hiring in September by payrolls processor Automatic Data Processing will be released on Wednesday at 8:15 a.m. (1215). Weekly initial jobless claims data due on Thursday will also be released as scheduled.