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SYDNEY — Asian stocks rose on a rally in regional chip shares on Monday after China banned some purchases from Micron Technology, while Wall Street futures struggled as U.S. debt ceiling negotiations approached crunch time after stalling last week.

Europe is set to extend the caution, with pan-regional Euro Stoxx 50 futures pointing to a flat open. S&P 500 futures were also little changed while Nasdaq futures were up 0.1%.

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U.S. President Joe Biden and House Republican Speaker Kevin McCarthy will meet to discuss the debt ceiling on Monday, less than two weeks before the June 1 deadline after which Treasury expects the federal government will struggle to pay its debts.

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A failure to lift the debt ceiling would trigger a default, likely sparking chaos in financial markets and a spike in interest rates.

MSCI’s broadest index of Asia-Pacific shares outside Japan was last up 0.5%. Japan’s Nikkei rose 0.8% to fresh 33-year highs, South Korea’s KOSPI gained 0.7% and Hang Kong’s Hang Seng index surged 1.3%.

Sentiment was also buoyed by President Biden’s remarks that he expected a thaw in frosty relations with China “very shortly.”

Beijing on Sunday barred U.S. firm Micron from selling memory chips to key domestic industries over security concerns, a move that helped stocks of Micron’s rivals in China and elsewhere, which are seen benefiting as mainland firms seek memory products from other sources.

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Elsewhere, market jitters about the upcoming U.S. debt ceiling talks continued.

“In the art of brinkmanship, it feels that to get a deal we must see greater market volatility,” said Chris Weston, head of research at Pepperstone.

“While for much of last week the headlines were that a deal is within reach, the breakdown in talks from Republican negotiators on Friday has many thinking that we could be pushed right to the June deadline before we see an agreement.”

Jonathan Pingle, U.S. chief economist at UBS, views the Japanese yen and gold as best placed to benefit from a U.S. default.

“Only a 1-month long impasse post the X-date is likely to cause a tightening of financing conditions sharp enough that it causes the dollar to rally strongly,” said Pingle.

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On Friday, reports that debt ceiling negotiations had reached an impasse rattled markets even as Federal Reserve Chairman Jerome Powell said U.S. interest rates might not need to rise as much given the tighter credit conditions from the banking crisis.

Futures are pricing in an about a 90% chance that the Fed would keep rates unchanged at its next meeting in June, and a total of almost 50 basis points of cuts by the end of the year.

That has knocked the dollar off a two-month top against a basket of major peers and was last at 103.05 on Monday, flat for the day.

Meanwhile, regional U.S. bank shares continued to fall on Friday, as Treasury Secretary Janet Yellen reportedly warned that more mergers may be necessary after a series of bank failures.

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In Asia, China kept its key lending rates unchanged on Monday even as an ongoing economic recovery disappointed. Traders are also digesting the implications of the Group of Seven’s “de-risk, not decouple” approach to China and supply chains flagged at the group’s summit on Sunday.

Beijing has summoned the Japanese ambassador to register protests over “hype around China-related issues” at the summit.

Later in the week, the Fed will release minutes of the May meeting on Wednesday, while U.S. personal consumption expenditures (PCE) inflation data is due out on Friday.

In the Treasuries market, debt ceiling concerns have created large distortions in the short-end of the yield curve as investors avoid bills that come due when the Treasury is at risk of running out of funds.

The yield on the 1-month Treasury bill jumped 15 basis points to 5.6677% on Monday.

Two-year yields were five basis points lower to 4.2387%, pulling away from a recent two-month high, while the 10-year yield also dipped four bps to 3.6536%.

Oil prices took a hit. U.S. crude futures were down 0.9% to $70.94 per barrel, while Brent crude futures fell 0.8% to $75.01 per barrel.

Gold prices were largely unchanged at $1,976.19 per ounce.

(Reporting by Stella Qiu; Editing by Sam Holmes and Muralikumar Anantharaman)