Stocks higher on hopes for a deal to avoid ‘cliff’

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NEW YORK (AP) — Stocks gained on signs that lawmakers are edging toward a deal that would help the United States avoid the “fiscal cliff.”

Indexes shrugged off an early loss and were higher in early afternoon trading. As of 3:30 p.m. EST the Dow Jones industrial average was up 95 points at 12,973. It had been down as much as 112 points shortly after the opening bell.

The Standard and Poor’s 500 was up nine points at 1,408. The Nasdaq composite was up 20 points at 2,988.

Huge tax increases and spending cuts will come into effect Jan. 1 if no deal on the U.S. budget is reached. Economists say the measures could push the U.S. back into recession. President Obama said he believed that both parties can reach a “framework” on a debt-cutting deal before Christmas, while House Speaker John A. Boehner, Ohio Republican, told reporters that he was optimistic a deal could be reached, according news outlets including CNBC.

Craig Johnson, a Minneapolis-based technical market strategist at Piper Jaffray, said lawmakers realize that there is too much at stake to allow the deadline to pass without reaching a deal.

“I don’t think that anybody in Washington is going to do something so draconian, or so negative, that we’re going to trigger a recession,” Mr. Johnson said. “There will be some compromise.”

Concern that the U.S. will go over the fiscal cliff has weighed on stocks since the Nov. 6 elections returned a divided government to power, with Mr. Obama staying in the White House and Republicans retaining control of the House.

Uncertainty about possible higher taxes for capital gains is prompting investors to consider selling stocks, Mr. Johnson said.

Many companies are making special end-of-year dividend payments or moving up their quarterly payouts because investors will have to pay higher taxes on dividend income starting in 2013 unless lawmakers reach a compromise on taxes and government spending.

Costco, the wholesale-club operator, surged $5.80 to $102.3 after the company said that it would pay a special dividend of $7 a share next month, in addition to the regular quarterly dividend it pays shareholders.

Las Vegas Sands Corp. rose Tuesday after the casino operator said it would distribute about $2.26 billion to shareholders before the end of the year.

With the market’s attention focused on the outcome of the cliff negotiations, some investors also are cautioning that third-quarter earnings do not bode well for the stock market.

“Think of corporate earnings as the canary in the coal mine,” said Douglas Cote, chief market strategist at ING U.S. Investment Management. “Corporations are the first ones to signal that there is something going on with economic growth around the world.”

Company earnings are down 0.9 percent in the third quarter, data provider FactSet said in a report Nov. 23. If they finish the period lower, it would mark the first decline in three years.

In economic news Wednesday, U.S. sales of new homes dipped 0.3 percent in October, though they’re up 20.4 percent for the year, according to a government report. Stable home prices suggest the housing market is steadily recovering.

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