MARKET REPORT

Market rides wave of optimism

— Stocks climbed Tuesday on Wall Street, pushing the Standard & Poor’s 500 to its highest level in two months on optimism that lawmakers are closing in on a budget deal that will stop the U.S. from going over the “fiscal cliff” at the beginning of next year.

The Dow Jones industrial average rose 115.57 points to 13,350.96, its biggest one-day gain in almost a month. The Standard & Poor’s 500 rose 16.43 points to 1,446.79, its highest close since Oct. 18. The Nasdaq composite rose 43.93 points to 3,054.53.

Stocks slumped after the presidential election Nov. 6 on concern that a divided government would struggle to reach an agreement before Jan. 1, when a series of tax increases and government spending cuts are scheduled to take effect if no deal is reached. Those measures could push the U.S. back into recession. The S&P 500 has since recouped all of those losses.

Some investors say stocks are already pricing in too much optimism. Any deal, while ensuring that the economy avoids the full impact of the fiscal cliff, will still involve higher taxes and less government spending. That will be a drag on economic growth, said David Wright, a managing director and co-founder at Sierra Investment Management in Santa Monica, Calif.

“There are just too many naive people thinking that the agreement itself is a significant event — it isn’t,” Wright said. “The implementation is going to be negative for the economy.”

Stocks added to their gains after the Standard & Poor’s rating agency said at midday that it had raised Greece’s credit grade by six notches to B-, lifting the country out of default. The threat of a Greek default had roiled markets in the first half of this year. Investors worried that the heavily indebted nation would leave the euro, opening the way for a breakup of the currency bloc. The ratings firm said the upgrade reflected its view that the other 16 countries using the euro are determined to keep Greece inside the currency union.

The Dow is up 2.5 percent in December and is on track to close higher for a fourthstraight year. The index has advanced 9 percent in 2012. The S&P 500 also is up for the year, gaining 15 percent.

Allstate Corp. gained 56 cents, or 1.4 percent, to $41.35 after the company’s board of directors approved a plan to buy back up to $1 billion of the insurer’s shares by the end of the year.

Eli Lilly also advanced after saying it would buy back its own stock. The drugmaker rose $1.18, or 2.4 percent, to $49.52 after saying its board had approved a $1.5 billion share buyback.

The yield on the 10-year Treasury note climbed 5 basis points to 1.82 percent. The yield on the note has risen 20 basis points since the start of December.

Business, Pages 29 on 12/19/2012

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