By Ankur Banerjee

SINGAPORE (Reuters) - Asian stocks surged on Friday as the progress on the bill to raise U.S. debt ceiling and increasing hopes that the Federal Reserve might stand still on interest rates in its next meeting helped perk up investor appetite for risky assets.

The U.S. Senate is on track to pass a bill to lift the government's $31.4 trillion debt ceiling late on Thursday in Washington, Democratic Majority Leader Chuck Schumer said, after the House of Representatives passed the bill on Wednesday.

The Treasury Department has warned it will be unable to pay all its bills on June 5 if Congress fails to act.

MSCI's broadest index of Asia-Pacific shares outside Japan spiked 1.13% higher. Australia's S&P/ASX 200 index rose 0.57%, while Japan's Nikkei was 0.71% higher.

China shares have been hamstrung by worries over stuttering post COVID-19 recovery. The Shanghai Composite Index was set to open 0.2% higher while, Hong Kong's Hang Seng index was set to open up 2% higher.

Data overnight showed the number of Americans filing new claims for unemployment benefits increased modestly last week and private employers hired more workers than expected in May, pointing to continued labour market tightness.

Harry Ottley, an economist at Commonwealth Bank of Australia (OTC:CMWAY), said the signs of slowing wage pressure has raised hopes that the Federal Reserve will pause raising interest rates in two weeks.

Traders have steadily dialled back their bets on the Fed raising interest rates in two weeks, with markets pricing in a 20% chance of the central bank hiking by 25 basis points compared to 50% chance a week earlier, according to CME FedWatch tool.

"Investors were also buoyed by news that the U.S. House of Representatives had passed a U.S. debt ceiling bill in a crucial step to avoid a U.S. default, with the measure moving to the US Senate," CBA's Ottley said.

Focus now shifts to the Labor Department's closely watched unemployment report for May, due on Friday. The data will help determine whether the Fed sticks with its aggressive rate hikes.

Comments from Fed officials also helped embolden Fed pause hopes, with Philadelphia Federal Reserve President Patrick Harker saying U.S. central bankers should not raise interest rates at their next meeting.

"It's time to at least hit the stop button for one meeting and see how it goes," Harker said.

Overnight, the Nasdaq and S&P 500 closed at their highest since August 2022 as investors embraced a resilient labor market amid optimism the Fed can engineer a soft economic landing.

U.S. Treasury yields also fell on Thursday. In early Asian hours, the two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 0.6 basis points at 4.347%, having slipped around 5 basis points on Thursday.

The yield on 10-year Treasury notes was up 0.2 basis points to 3.610%, while the yield on the 30-year Treasury bond was down 0.6 basis points to 3.829%.

In the currency market, the dollar index, which measures U.S. currency against six major peers was flat after dropping 0.6% overnight, with the euro up 0.01% to $1.0762.

The Japanese yen weakened 0.11% to 138.93 per dollar, while Sterling was last trading at $1.2527, up 0.02% on the day.

U.S. crude eased 0.01% to $70.09 per barrel and Brent was at $74.26, down 0.03% on the day.

Spot gold dropped 0.1% to $1,976.69 an ounce. U.S. gold futures fell 0.05% to $1,977.10 an ounce.