Tuesday January 1, 2013

NEW YORK (AP) -- The stock market shot higher on Monday afternoon, in the year’s final hour of trading, signaling that investors believe the politicians in Washington will work out a budget compromise to avoid the "fiscal cliff."

The Dow was up 137 to 13,075 in the late afternoon, more than 1 percent. The Standard & Poor’s 500 and the Nasdaq composite were up by more, with the Nasdaq rising nearly 2 percent.

It was a high note in what had been a choppy day for the market, as choppy as the "fiscal cliff" deal-making that has been yanking it around.

Stocks opened lower and struggled for direction in the morning. They jerked higher at midday, on reports that the bare outline of a deal to avoid the "cliff" had been knit together. Then, they lost some of those gains when President Barack Obama made an early afternoon appearance to say that a compromise was "within sight," but not finalized. Then, in the late afternoon, they shot higher.

The market’s indecisiveness overlaid a day of dramatic budget negotiations in Washington. If Republicans and Democrats can’t agree to a new budget deal by midnight, then higher taxes and lower government spending will automatically kick in Tuesday -- the so-called fiscal cliff.

That would hurt the economy and could even send it back into recession, many investors believe. But what might hurt more, they add, is the psychological impact of knowing that the government can’t agree on a budget.


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"We’re having a fragile recovery, with the pain of 2008 still fresh on everybody’s mind," said Joe Heider, principal at Rehmann Group outside Cleveland. "It’s fear of the unknown. And fear is one of the greatest drivers of the financial markets."

The Dow Jones industrial average surged 99 points in midday trading after The Associated Press reported that Republicans and Democrats had agreed on some key aspects of a compromise budget plan.