MARKET REPORT

Stocks gain on budget-talk optimism

— Stocks rose for a fifth straight day Tuesday as investors latched on to reports of progress in budget talks in Washington, with the Standard & Poor’s 500 index seeing its biggest gain this month.

The Dow Jones industrial average gained 78.56 points to 13,248.44 after having been up as much as 137 points earlier in the day. The S&P 500 finished up 9.29 points at 1,427.84. The Nasdaq composite ended up 35.34 points at 3,022.30.

Delta Air Lines rose 52 cents, or 5.1 percent, to $10.66 after the company said it will buy almost half of Richard Branson’s Virgin Atlantic for $360 million as it seeks a bigger share of the lucrative New York-to-London travel market.

American International Group gained $1.90 to $35.26 after the U.S. Treasury Department said it has sold the rest of its stake in the insurer. AIG was bailed out by the government after nearly collapsing during the 2008 financial crisis.

The S&P and Nasdaq also got a boost from Apple, which makes up 4 percent of the S&P and 11 percent of the Nasdaq. Apple isn’t part of the Dow.

Apple advanced $11.57, or 2.2 percent, to $541.39, its biggest advance in more than a week. Apple’s share price had fallen sharply since closing at a record high of $702.10 on Sept. 19 as investors worried that the tech giant won’t be able to maintain its rapid growth as competition in the smart phone market intensifies.

Stocks have edged up since the start of the month as investors watch for developments in the federal budget talks. Tax increases and spending cuts are scheduled to start Jan. 1 unless a deal is reached to reduce the U.S. budget deficit. Some economists say the increases and cuts, if implemented, could eventually push the economy back into recession.

The S&P 500 fell as much as 5 percent after the U.S. presidential election Nov. 6 as investors worried that gridlock in Washington would prevent a budget deal. With Tuesday’s advance, the S&P 500 has recouped almost all of the ground it lost since the election when it closed at 1,428.39.

Stock markets stayed higher even after Republican House Speaker John Boehner said Tuesday that President Barack Obama is slow-walking talks to avoid the “fiscal cliff,” and hasn’t outlined spending cuts he’s willing to support as part of a compromise. The fiscal cliff refers to a package of tax increases and government spending cuts that will take effect next year unless Congress and the Obama administration strike a deal before then to avert them.

Democratic Senate Majority Leader Harry Reid said Tuesday that it would be “extremely difficult” to pass legislation to address the fiscal cliff before Christmas, but added there’s still a chance it can be done.

“The market has been very susceptible to fiscal cliff headlines,” said Todd Salamone, a senior vice president at Schaeffers Investment Research, adding that stocks have rallied more on good news than they have fallen on indications that talks were stalling. “It seems the expectation is that something will get done, but it’s a very cautious expectation. There’s a lot of money on the sidelines.”

Stocks are holding on to their gains for the year. The Dow Jones is up 8.4 percent since the start of 2012, while the S&P 500 has gained 13.5 percent.

Investors were also encouraged by a report that showed an index of German investor optimism rose more than expected in December, suggesting market professionals think Europe’s largest economy will avoid an outright recession.

The yield on the 10-year Treasury note rose 4 basis points to 1.66 percent.

Business, Pages 26 on 12/12/2012

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