Wall St extends gains on 'cliff' deal

NEW YORK Wed Jan 2, 2013 11:35pm IST

A trader works on the floor of the New York Stock Exchange, December 31, 2012. REUTERS/Joshua Lott

A trader works on the floor of the New York Stock Exchange, December 31, 2012.

Credit: Reuters/Joshua Lott

Related Topics

Stocks

   

NEW YORK (Reuters) - U.S. stocks jumped on the year's first day of trading, after Washington lawmakers cut a last-minute deal to avert automatic tax hikes that threatened to stunt economic growth.

With the gains, the S&P 500 was on target for its highest close since October 19.

The rally was broad-based, with nine stocks rising for every one falling on the New York Stock Exchange. All 10 S&P 500 industry sector indexes rose at least 1 percent, led by the S&P financial index .GSPF, up 2.2 percent.

The S&P Information Technology index .GSPT gained 2.1 percent. Among the strongest names in the sector was Hewlett-Packard (HPQ.N), which climbed nearly 5 percent to $14.95. HP's gain followed a miserable 2012, when the stock fell nearly 45 percent.

On New Year's Day, while the U.S. stock market was closed, Congress passed a bill to raise taxes on wealthy individuals and families, and preserve certain benefits, while avoiding immediate austerity measures. The combination of mandatory tax hikes and reduced federal spending, which had been set to go into effect on January 1, had been known as the "fiscal cliff.

" We had three choices: We were going to be off the cliff, we were going to be on the cliff, or we were going to avoid the cliff, and we avoided it," said Brian Battle, director of trading at Performance Trust Capital Partners in Chicago.

"There's a relief rally, some progress because we raised revenue, but I think it's going to be short-lived because the relief rally today was created by politics, and the next cliff is going to be created by politics."

The vote avoided income-tax hikes for all U.S. households, but failed to resolve other political budget showdowns. Spending cuts of $109 billion in military and domestic programs were delayed for just two months, as another fight over the U.S. debt limit also looms then.

The market's surge was due to "the concrete news as opposed to a lack of specific news" that was common during the negotiations, said Stephen Carl, head of U.S. equity trading at The Williams Capital Group in New York.

U.S. stocks ended 2012 with the S&P 500 up 13.4 percent for the year, as investors largely shrugged off worries about the fiscal cliff. For the year, the Dow gained 7.3 percent and the Nasdaq jumped 15.9 percent.

The Dow Jones industrial average .DJI gained 223.60 points, or 1.71 percent, to 13,327.74. The Standard & Poor's 500 Index .SPX advanced 24.61 points, or 1.73 percent, to 1,450.80. The Nasdaq Composite Index .IXIC climbed 66.87 points, or 2.21 percent, at 3,086.38.

Bank shares rose following news that U.S. regulators are close to securing another multibillion-dollar settlement with the largest banks to resolve allegations that they unlawfully cut corners when foreclosing on delinquent borrowers.

Bank of America Corp (BAC.N) rose 3.4 percent to $11.99 and Wells Fargo (WFC.N) shares added 2 percent to $34.87. JPMorgan Chase & Co (JPM.N) shares rose 1.5 percent to $44.34.

Shares of Zipcar Inc ZIP.O jumped 48.4 percent to $12.23 after Avis Budget Group Inc (CAR.O) said it would buy Zipcar for about $500 million in cash to compete with larger rivals Hertz and Enterprise Holdings Inc. Avis rose 4.5 percent to $20.72.

Shares of Apple (AAPL.O) rose 2.4 percent to $545, boosting technology stocks, following a report that the most valuable tech company has started testing a new iPhone and a new version of its iOS software. Apple stocks struggled in the final weeks of 2012 before a rally to end the year.

U.S. manufacturing expanded slightly in December after an unexpected November contraction, an Institute for Supply Management report showed on Wednesday.

A Commerce Department report showed U.S. construction spending fell in November for the first time in eight months, as an extended bout of weakness in the business sector outweighed modest growth in outlays on residential projects.

The stock market's reaction to both reports was muted.

(Editing by Jan Paschal)

FILED UNDER:

Economic Pulse

REUTERS SHOWCASE

Vodafone Tax Dispute

Vodafone Tax Dispute

India advised against challenging Vodafone tax ruling - source  Full Article 

Banking Sector

Banking Sector

India's laggard state lenders face tough sell on capital raising plan  Full Article 

Trade Deal

Trade Deal

WTO postpones trade deal by a day after last-minute objection.  Full Article 

Falling Oil Prices

Falling Oil Prices

Saudis signal no push for oil cut as market to "stabilise itself"  Full Article 

Raising Stake

Raising Stake

Nippon Life to raise stake in Reliance Capital fund unit  Full Article 

Sterilisation Camps

Sterilisation Camps

Sterilisation targets remain in all but name, critics say  Full Article 

Share Buyback

Share Buyback

Samsung Electronics to buy back $2 billion in shares  Full Article 

Microsoft in China

Microsoft in China

Microsoft to pay China $140 million for 'tax evasion'   Full Article 

Flashback: 26/11

Flashback: 26/11

The three-day attack in November 2008 left 166 dead.  Slideshow 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage