Stocks gain on optimism that a budget deal is near

STEVE ROTHWELL

AP Busi­ness Writer

NEW YORK — Stocks climbed on Wall Street Tues­day, push­ing the Stan­dard and 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.

House Speaker John Boehner told reporters he remains hope­ful that a fis­cal cliff com­pro­mise can be reached, but says Pres­i­dent Barack Obama has yet to offer a bal­anced deficit-cutting plan. Boehner said Obama’s lat­est offer for $1.3 tril­lion in tax increases over the next decade with $850 bil­lion in spend­ing cuts is not enough. The White House says that Pres­i­dent Obama has moved halfway to meet Boehner on a bud­get deal.

“Peo­ple are cheer­ing the prospect for some com­pro­mise in Wash­ing­ton right now,” said Joe Costi­gan, direc­tor of equity research at Bryn Mawr Trust Co. “At the moment there is some pretty good news and the mar­ket is react­ing favor­ably to it, but the deal isn’t done yet.”

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 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 break-up of the cur­rency block. The rat­ings firm said the upgrade reflected its view that the other 16 coun­tries using the euro are deter­mined to keep the Greece inside the cur­rency union.

The Dow Jones is up 2.5 per­cent in Decem­ber and is on track to close higher for a fourth straight year. The index has advanced 9 per­cent in 2012. The S&P 500 is also 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 that its board had approved a $1.5 bil­lion share buyback.

Apple gained $15.07, or 2.9 per­cent, to $533.90. Sam­sung Elec­tron­ics Co. said it had with­drawn its requests to have sales of cer­tain Apple prod­ucts banned in Europe, though the com­pany is still suing Apple over the use of cer­tain tech­nol­ogy licenses.

Apple has rebounded in the last two days. It closed at its low­est in 10 months Dec. 14 as investors wor­ried that inten­si­fy­ing com­pe­ti­tion in the smart­phone mar­ket would erode Apple’s profit margins.

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.

Among stocks mak­ing big moves today;

• Arbi­tron, a provider of radio rat­ings, surged $8.99, or 24 per­cent, to $47.03 after TV rat­ings com­pany Nielsen said it would buy it for about $1.26 billion.

• Fact­Set Research Sys­tems Inc., a provider of finan­cial infor­ma­tion to investors, fell $4.20, or 4.4 per­cent, to $92.19 after it reported earn­ings and rev­enues that fell short of ana­lysts’ estimates.

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