Stocks tread water as next fiscal showdown looms

The stock market crept higher in midday trading Thursday, one day after the Dow Jones industrial average posted its biggest gain in more than a year.
Retailers reported mixed sales and the prospect of a new budget battle in Congress loomed.
The Standard & Poor's 500 index inched up one point to 1,463 and the Nasdaq composite rose four points to 3,116.
UnitedHealth Group held back the Dow, sinking $1.65 to $52.88, a 3 percent drop, after analysts at Deutsche Bank and other firms cut their ratings on the insurer's stock. The Dow was up just seven points to 13,419 as of 12:22 EST.
"It's natural to relax a bit after such a huge day as yesterday," said Lawrence Creatura, who manages a small-company fund at Federated Investors.
The Dow soared 308 points Wednesday, its largest point gain since December 2011. The rally was ignited after lawmakers passed a bill to avoid a combination of government spending cuts and tax increases called the "fiscal cliff."
That deal gave the market a jump start into the new year. The Dow and the S&P 500 are already up more than 2 percent.
"We're off to a very strong start," Creatura said. "The dominant reason is the resolution of the fiscal cliff. But January is usually a strong month, as investors all shift money into the market at the same time. When the calendar flips, it's as if you're allowed the begin the race anew."
Economists had warned that the full force of the fiscal cliff could drag the country into a recession. The law passed late Tuesday night averted that outcome for now, but other fiscal squabbles are likely in the months ahead. Congress must raise the government's borrowing limit soon or be forced to choose between slashing spending or paying its debts.
Ross Stores surged 6 percent in early trading. The retailer said sales at stores open at least a year increased 11 percent during the holiday shopping season. Ross Stores rose $3.65 to $58.09.
Nordstom Inc. surged 2 percent after the department-store chain also reported strong holiday sales, especially in the South and Midwest. Nordstrom's stock was up $1.21 to $54.84.
Other retailers struggled during the holidays as shoppers held out for deep discounts.
Family Dollar Stores sank 12 percent after reporting earnings that fell short of analysts' projections. The company also forecast a weaker outlook for the current period and full year. Family Dollar's stock lost $7.25 to $56.75.
Among other stocks making big moves:
— Transocean jumped $3.33, or 7 percent, to $49.57. The owner of the oil rig that sank in the Gulf of Mexico in 2010 after an explosion killed 11 workers reached a $1.4 billion settlement with the Justice Department.
— Hormel Foods, known for making Spam and other meat products, said that it's buying Skippy, the country's No. 2 peanut butter brand, from Unilever for about $700 million. Hormel's stock jumped 5 percent, or $1.56, to $33.60.

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In South Korea, Kim Jong-un's New Year speech generates surprise - and doubt

North Korea’s leader Kim Jong-un signaled his desire for improved relations with South Korea in a New Year’s Day address that South Korean officials see as an unsatisfying attempt to appear conciliatory.
A day after Kim Jong-un stressed the need for resolving North-South confrontation, South Korean Foreign Minister Kim Sung-hwan responded Wednesday by calling for North Korea to make “wise and right decisions” by coordinating with “neighboring countries.”
Kim’s address was noteworthy for both the absence of the type of recriminations that characterize North Korean rhetoric and also because Kim Jong-un seized the occasion to speak publicly.
Recommended: Kim 101: How well do you know North Korea's leaders?
The address, broadcast by North Korean state radio and television, was also noteworthy for another reason: Kim Jong-un’s father, Kim Jong-il, who died in December 2011, never delivered a New Year’s address. His grandfather, “Great Leader” Kim Il-sung, last addressed his nation on New Year’s day in 1994, about six months before his death.
The relative restraint of Kim Jong-un’s remarks – and the fact that he made them in person, not in a written statement in the official North Korean media – strikes analysts as a positive sign despite contrary indications of rising North-South confrontation.
“The language was tempered,” says Mark Fitzpatrick, director of the nonproliferation program at the International Institute for Strategic Studies in London. “It wasn’t over the top like so much North Korean propaganda.”
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Mr. Kim, in an address that also focused on the economy, called on South Korea’s “antireunification forces” to “abandon their hostile policy against their fellow countrymen” and pursue “national reconciliation, unity, and reunification.”
While those words are staples of North Korean rhetoric, they were bereft of mention of South Korea’s outgoing president, Lee Myung-bak, or the incoming president, Park Geun-hye, the daughter of the long-ruling dictator Park Chung-hee.
North Korea has repeatedly attacked Mr. Lee with vitriolic language, castigating both him and Ms. Park for suggesting the North give up its missile and nuclear programs as a prerequisite for resuming the massive shipments of food and fertilizer sent by the South during the decade of the Sunshine policy from 1998 to 2008.
Kim Jong-un suggested the need to go back to that era by mentioning the joint declarations signed by South Korean presidents during summits with Kim Jong-il in Pyongyang in June 2000 and October 2007. The late Kim Dae-jung pursued the Sunshine policy as president of South Korea from 1998 to 2003, and his successor, Roh Moo-hyun, carried on the policy from 2003 to 2008, at which point the conservative Lee reversed course after a landslide victory over a liberal foe.
Kim Jong-un’s address may hint that North Korea might be willing, in the interest of resumed aid, to concede to South Korean conditions – such as avoiding harsh personal rhetoric, much less threats to attack South Korea in the Yellow Sea, the scene of periodic bloodshed, or across the demilitarized zone that has divided the Koreas since the Korean War ended in an armistice in July 1953.
Nonetheless, South Korean officials did not seem immediately receptive. South Korea’s unification minister, Yoo Woo-ik, described Kim Jong-un’s remarks as “bland” – with “no ground-breaking proposals.”
Mr. Fitzpatrick, a former senior nonproliferation official at the US State Department, cautions against taking Kim Jong-un’s remarks as a sharp shift in North Korean policy. “I didn’t read it as an olive branch,” he says. “I read it as presidential” – a sign that Kim wants to project a statesmanlike image as he enters his second year in power.
Park Geun-hye, while interested in resuming dialogue with North Korea, has said she is willing to authorize “humanitarian” aid to North Korea. She is expected to calibrate humanitarian aid depending on the North’s responses.
Rhetoric on both sides is likely to intensify as South Korea takes a seat this month on the UN Security Council as a nonpermanent member for a two-year term. South Korea has called for strengthening sanctions against the North as punishment for firing a long-range missile last month that put a small satellite into orbit. The Security Council imposed sanctions after the North conducted an underground nuclear test in May 2009, but the North continued to receive food, fuel, and other aid from China.
Fitzpatrick believes increased sanctions may have a negative effect. “There might be a nuclear device tested again,” he warns, noting that North Korea appears to have completed most preparations for its third such test. The North conducted its first nuclear test in October 2006.
Still, he sees Kim Jong-un’s speech as indicating his desire to rein in the North’s military establishment. “Three times he talked about uniting around the Workers’ Party,” he says. “That’s in keeping with the need to rebalance power. The subtext is to obey the party.”

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Mandela's recovery "on track" at home: South African government

 Former South African President Nelson Mandela's recovery is 'on track' at his home in Johannesburg, the government said on Wednesday in its first statement since the anti-apartheid hero was released from hospital a week ago.
Mandela, 94, who has been in frail health for several years, spent nearly three weeks in a Pretoria hospital in December for treatment of a lung infection and surgery to remove gallstones, his longest stay for medical care since his release from prison in 1990.
"Madiba's recovery continues on track," presidency spokesman Mac Maharaj said referring to Mandela by his clan name.
"We are now in the phase where if we do not hear from his doctors, we assume he is all right," he said, without giving details on Mandela's condition.
Mandela has been receiving what the government calls "home-based high care" at his residence in an upscale Johannesburg neighborhood.
Mandela became South Africa's first black president after the first all-race elections in 1994, serving a five-year term.
He has been mostly absent from the political scene for the past several years due to poor health, while questions have been raised as to whether his ruling African National Congress (ANC) has lost the moral compass he left behind.
Under such leaders as Mandela, Walter Sisulu and Oliver Tambo, the ANC gained a stellar global reputation. Once the yoke of apartheid was thrown off, it began ruling South Africa in a blaze of goodwill from world leaders who viewed it as a beacon for a troubled continent and world.
Close to two decades later, this image has dimmed as critics inside and outside the country, and in the movement itself, accuse ANC leaders of indulging in the spoils of office, squandering mineral resources and engaging in power struggles.
Mandela's "Rainbow Nation" of reconciliation has come under strain under President Jacob Zuma, a Zulu traditionalist with a history of racially charged comments, including a statement in December where he reportedly said dog ownership was for whites and not part of African culture.
Nobel Peace Prize laureate Mandela has a history of lung problems dating back to when he contracted tuberculosis as a political prisoner. He spent 27 years in prison, including 18 years on the windswept Robben Island off Cape Town.
Mandela was also admitted to hospital in February because of abdominal pain but released the following day after a keyhole examination showed there was nothing seriously wrong with him.
He has spent most of his time since then in another home in Qunu, his ancestral village in the impoverished Eastern Cape province.
His poor health has prevented him from making public appearances in the past two years, although he has continued to receive high-profile visitors, including former U.S. President Bill Clinton.

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Italy's Monti fires opening salvo of second-term campaign

 Italy's outgoing Prime Minister Mario Monti pledged to cut labor taxes to fuel growth on Wednesday as he shed his neutral technocrat stance and fired the opening salvo of his campaign for a second term.
The former European Commissioner was appointed in November 2011 to lead an unelected right-left government of experts to save Italy from financial crisis after Silvio Berlusconi quit amid a sex scandal and a crisis that threatened the euro.
Berlusconi's party withdrew its support for Monti in December, and Monti resigned on December 21, about two months earlier than had been planned.
On Friday Monti abandoned his mediator role he played to enter politics in his own right and lead a centrist alliance to fight the February 24-25 parliamentary vote.
The 69-year-old's bloc is now in a three-way race with the Democratic Party (PD) on the left and four-time prime minister Berlusconi's People of Freedom (PDL) on the right - his allies until 12 days ago.
A poll published on Wednesday said Monti's bloc would win 12 percent of the vote, while one published last week said it could gain up to 16 percent, depriving rivals of a clear win, but not enough to govern.
They show the PD and its coalition ally are on track to win the vote, at least in the lower house. Monti repeated on Wednesday that he wanted to form a broad coalition of pro-Europe, pro-reform parties after the election.
To Italians who have borne the brunt of austerity measures he introduced in late 2011 to save Italy from a Greek-style debt crisis, Monti promised to lower labor taxes and "redistribute" wealth from the richest to the poorest if he wins.
"We need to reduce taxes on the labor force, both on workers and companies, by cutting spending," he said in an hour-long interview with state radio.
Monti again ridiculed Berlusconi, saying he was personally "confounded" by his "illogical" swings from praising his government to attacking it.
"I hope voters are less confused than I am," he said. The 76-year-old Berlusconi has attacked Monti, saying he took orders from German Chancellor Angela Merkel, while at the same time offering him the leadership of the center-right.
"Monti is no longer credible," Berlusconi counter-attacked in an interview on SkyTG24. "He broke his word" by entering the election race after promising he would not when he took over as head of a technocrat government, Berlusconi said.
Berlusconi also said that he could cede the premiership to someone else should his bloc win the election, probably as a way of renewing an alliance with the Northern League party.
The Piepoli poll published on Wednesday put Bersani's center-left bloc at more than 40 percent, more than 10 percentage points ahead of the center-right. Without the League, Berlusconi's bloc trails by more than 16 percent.
For the first time, Monti also directly attacked the center-left, saying Pier Luigi Bersani's PD and its SEL ally were too close to labor union positions aimed at protecting jobs and not creating new ones.
BROAD COALITION
The center-left "wants to conserve - for noble reasons and in good faith I'm sure - a crystallized labor market, hyper-protective compared with other countries," Monti said.
Three days after Bersani pressed Monti to say what side of the political spectrum he was on, the former European commissioner responded that he was on the side of those who want to change the country.
"Now we need a new type of government - one that is in favor of reforms and not of conserving the status quo," Monti said. Last week Monti said he wanted to lead a coalition that went beyond the traditional left-right split.
Under the complex electoral law, Bersani's two-party coalition could win a comfortable majority in the lower house without taking a secure command of the Senate, possibly making an alliance with Monti's bloc crucial to creating a stable parliamentary majority.
Pier Ferdinando Casini, leader of Monti's ally the UDC party, said on Wednesday Bersani should not become prime minister if his bloc does not win an outright majority in both houses.
In an interview with newspaper Avvenire, Casini suggested Monti should be given the top job even if his bloc wins fewer votes than Bersani's, an opinion rejected by Bersani's PD.
Monti is the favorite of the markets, the business establishment and the Catholic church, and the PD has said it would continue down the Europe-minded path of Monti's government, though with adjustments to boost growth and jobs.
Monti has helped restore investor confidence in Italy. The key measure of this - the difference in interest rates on Italian 10-year government bonds and safer German Bunds - lay on Wednesday at around half the level it was when he took office.

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After 'peaceful' 2012, Kashmiris urge end to war-time measures

Government tallies in Kashmir find that 2012 was the most peaceful year since an armed rebellion began in the disputed region in 1989. Despite that, no measures have been taken to demilitarize the region or to revoke the draconian laws that provide impunity to paramilitary forces here.
A report released by the Jammu and Kashmir state last week put hard numbers on the widely-observed notion that armed separatism has steadily declined and is nearing extinction. “There have been 33 grenade attacks and IED explosions this year up to November end as compared to 41 last year. 95 people, including 23 civilians, 14 paramilitary forces’ personnel and 58 militants, were killed in 2012. It is much lesser as compared to the year 2011 in which 173 people were killed,” the report said.
The relative peace has brought a revival in tourism to Kashmir, but a political dialogue for resolving Kashmiri aspirations remains moribund. Many residents of the mostly-Muslim Kashmir Valley still express a desire for independence, and India remains wary of lifting its heavy military presence.
“The year 2012 was peaceful if we look at the general change in the atmosphere but despite that nothing happened on demilitarization. The reason for it is that we are still operating under the security paradigm and we have not sufficiently moved away to a political paradigm yet,” says Gul Wani, a political analyst and academic at Kashmir University.
Recommended: Kashmir 101: Decoding Kashmir's conflict
That security paradigm persists partly out of a sense that the peace here is so fragile that it could be upset by a single incident of violence.
Still, that shouldn't preclude some movement on the political front, Mr. Wani argues. “The security establishment will remain the determining factor but within that the political actors, whether mainstream or separatists, will also continue to ask for liberalizing the civilian space, demilitarization, revocation of some laws."
Kashmiris have been pushing for years for the revocation of two laws in particular; the Armed Forces Special Powers Act (AFSPA) and Public Safety Act (PSA). AFSPA grants broad immunity to Indian forces operating in Kashmir, and the PSA allows for detention without trial for a minimum of six months and maximum of one year.
Also at issue is the heavy presence of military forces and bunkers throughout the state, including roughly 600,000 troops (including paramilitary and police forces), according to the Jammu and Kashmir Coalition of Civil Society, a prominent human rights organization.
“The militancy has died down to a trickle; a security review is required that could involve re-deployment of the troops,” agrees Radha Kumar, the director general of the Delhi Policy Group that works on track two diplomacy.
“There is a volatile situation but an uneasy calm. There has been steady decline in militancy. The dialogue is very important. We should look at this more positive way. We had recommended three things – stabilizing the situation on the ground, re-integration of divided areas and returning of former militants, and the peace process with the separatist groups,” says Ms. Kumar, a former member of a team of "interlocutors" appointed by the Indian government to start a dialogue with Kashmiris.
The state's chief minister, an ally of India's ruling coalition in New Delhi, has argued publicly for AFSPA's revocation. But last month the chief minister said that the Army has scuttled the proposal.
The National Conference Party, which currently rules the state, issued a statement on Dec. 28 after the Indian Army allegedly fired on protesters in Pulwama district saying that the Army cannot continue to use AFSPA to act with impunity, and that by such actions the Army was only making things difficult for the proponents of peace. The party also accused the Army of being responsible for the 2010 civil uprising in which 112 people were killed by paramilitary forces and police.
The Indian military cautions that it's too soon to assume the region will remain peaceful.
“One year being peaceful doesn’t mean the peace has returned, instead, there has to be durable peace,” says Lt. Col. J S Brar, Srinagar-based Defense spokesperson of India. He declined to comment on AFSPA saying that the “Army’s views on it are very well known that have been articulated by senior commanders and I will not comment on it.” The Army has argued that in most other states of India there is some legal protection for soldiers under a different law that is not fully applicable in Jammu and Kashmir.
There is also some push-back from human rights groups here about the extent of the peace. A report released today by the Jammu and Kashmir Coalition of Civil Society says that the year 2012 has passed just like previous years, and the state government has disgracefully claimed the year to be peaceful. Giving figures that contradict the home ministry, it says 148 people have lost their lives in 2012 because of violent incidents. It includes 35 civilians, 75 alleged militants, 36 armed forces personnel, 1 unknown person, and 1 retired police officer.

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Is Russia trying a dead whistle-blower because of a US law?

At the center of the stormiest US-Russia diplomatic crisis since the cold war stands the enigmatic figure of Sergei Magnitsky, for whom the US Senate has named a punitive new law that imposes harsh visa and economic sanctions against scores of Russian officials who are deemed to have committed serious human rights violations.
The tale of Mr. Magnitsky, a corporate lawyer who blew the whistle on a vast corruption scheme, was arrested by the same officials he had implicated, and was allegedly beaten to death in prison over three years ago, appears to validate all the worst suspicions held in the West about the nature of Vladimir Putin's Russia. The Magnitsky Act, signed into law by President Barack Obama last month, is a controversial new breed of legislation that aims to compensate for the perceived failures of Russia's justice system by meting out punishment to about 60 Russian officials deemed to have been involved in the wrongful prosecution and alleged murder of Magnitsky.
Do you know anything about Russia? A quiz.
The Kremlin's incandescent response makes it likely that the mutual acrimony will expand in weeks to come. Mr. Putin called the Magnitsky Act a "purely political, unfriendly act" that demanded a stern riposte. Last week he signed the retaliatory Dima Yakovlev Act, whose key provision is a ban on all adoptions of Russian children by US citizens.
But in an apparent effort to overturn the widely-held Western narrative, which sees Magnitsky as the victim of corrupt officials and a lawless state, Russian prosecutors have announced they will put the deceased Magnitsky on trial later this month, seeking to prove that he and his former boss, Bill Browder, head of the London-based Hermitage Capital, were the real criminals.
The pending trial has been fiercely opposed by Magnitsky's mother – who will be required to stand in for her dead son – and lawyers, who argue that a posthumous trial is against Russian law in all cases except when a family asks the court to "rehabilitate" a victim of an unjust verdict (a common legacy of the Stalin era).
"We did not ask for this, and we do not think the deputy prosecutor had any right to revive Sergei's case after it was closed upon his death," says Natalia Magnitskaya, Magnitsky's mother.
"We seriously doubt that the very same people who prosecuted Sergei hold out any prospect of rehabilitating him. So, our family doesn't want to take any part in these illegal actions," she adds.
Last week a Russian court acquitted Dmitry Kratov, a prison doctor who is the only official ever to have been charged in connection with Magnitsky's death. Mr. Kratov had been accused of failing to render timely medical assistance on the night Magnitsky died in handcuffs on the floor of a Moscow prison cell. A post-mortem report issued by the Russian Ministry of Health indicated that "the injuries on Magnitsky's body were most likely caused by multiple injuring impacts of a blunt object that might possibly be a rubber baton."
"This case was never properly investigated by authorities," says Lyubov Volkova, a member of the Public Oversight Commission, an independent watchdog mandated by Russian law to report on prison conditions. It was the first non-governmental group to look into the circumstances of Magnitsky's death.
"In Kratov's court case, both the judge and prosecutors acted as though they were his lawyers.... It seems that Kratov was just a scapegoat from the very beginning. That's not surprising, since deputy prosecutor Viktor Grin's name is on the US Magnitsky List, so obviously he wants to do everything possible to protect himself and make Magnitsky look guilty."
The narrative of Magnitsky's prosecution and death accepted by the US Senate, and several other Western legislatures that are considering variants of the Magnitsky law, is largely based on a 75-page report compiled by investigators working for Mr. Browder and also a 2011 investigation presented to then-President Dmitry Medvedev by the Kremlin's own in-house human rights commission. At the time, a somewhat shaken Mr. Medvedev appeared to agree that "at least some crimes" had been committed leading to Magnitsky's death.
According to that version, Hermitage's attorney Magnitsky went twice in 2008 to the Kremlin's State Investigative Committee to testify that corrupt police and tax officials had embezzled $230 million paid in taxes by Hermitage Fund companies, using corporate seals and charters seized in an earlier police raid on Hermitage's Moscow headquarters.
"My offices and our law firm's offices were raided by about 25 officers of Russia's Interior Ministry, who took all our official company documents," says Browder – once the biggest foreign investor in Russia – who had been barred from re-entering Russia about 18 months earlier on "national security" grounds.
"Those documents were then used in a complicated scheme to steal $230 million we had paid in taxes the previous year to the Russian government," he says. When Browder complained, he was charged by the same officers, in absentia, with underpaying his taxes in 2001.
After Magnitsky testified, Browder says, the same officers arrested him and placed him in the Butyrka prison, where he died a year later.
The investigations bankrolled by Browder have found that many of the police officers and other officials implicated by he and Magnitsky have since become inexplicably wealthy, and some have purchased expensive foreign properties. Aside from the doctor, Kratov, no Russian investigations have been opened into any of the 60 or so officials Browder alleges to have been involved in the corruption scam and the subsequent prosecution and untimely death of Magnitsky.
The Russian government's case, which will feature at Magnitsky's upcoming posthumous trial, appears to be summarized in a document handed out to US senators last summer by visiting Russian parliamentarians. It alleges that Browder, who had long championed minority shareholder rights in Russia, was guilty of acquiring more shares of the state natural gas monopoly Gazprom than he was legally entitled to, and that Hermitage companies had engaged in tax evasion and other wrongdoing. It also appears to claim that the $230 million tax theft was the work of Browder – who had been exiled to London more than a year earlier – operating in league with Magnitsky.
"The case against Magnitsky and me was entirely trumped up," says Browder.
"The clear aim of Putin and his government is to say 'Magnitsky died of natural causes, he was not killed, and his arrest was lawful because he was a criminal'. In order to create the right formal backdrop for that narrative they have exonerated all 60 people who played a role in the Magnitsky case. The most recent was Kratov last week," he says.
"Now their next step is to prosecute and convict Magnitsky [and me].... This obviously won't play well in any forum where people have looked at the evidence, but Putin is more concerned about what they can put on state television to justify their actions before the less informed Russian audience," he adds.

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A look back at memorable days on Wall Street

2012 had its fair share of big days on the stock market. Here's a look back at what set off the biggest moves in the Dow Jones industrial average.
The Biggest Drops:
— Nov. 7: Down 313 points. On the day after the presidential election, investors worried that a divided government wouldn't reach deal on the budget in time to avoid across-the-board government spending cuts and tax increases Jan. 1.
— June 1: Down 275 points. A dismal report on hiring and employment for May sent the market swooning.
— June 21: Down 251 points. A sharp decline in a closely watched measure of manufacturing in the Northeast got investors worried about the U.S. economy. China also reports a slowdown at its factories.
— October 23: Down 244 points. Big companies including Xerox, DuPont and 3M report slumping revenues for the third quarter.
— April 10: Down 214 points. Rising borrowing costs for Spain and Italy made investors worry that those two major countries would become the latest to be engulfed in Europe's government debt crisis.
The Biggest Gains:
— June 6: Up 287 points. Hope that European officials would find ways to ease the region's debt crisis launched a rally.
— June 29: Up 278 points. Markets stormed higher after European leaders came up with a plan to rescue banks, relieve debt-burdened governments and restore investor confidence.
— Sept. 6: Up 244 points. Mario Draghi, the head of the European Central Bank, unveiled a program to buy government bonds from the region's struggling countries with the aim of lowering their borrowing costs.
— March 13: Up 218 points. U.S. banks led a powerful rally after JPMorgan Chase said it plans to buy back as much as $15 billion of its stock and raise its dividend. The government also reported strong retail sales for February.

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Stocks shoot up as investors bet on 'cliff' deal

 The stock market shot higher on Monday even as the "fiscal cliff" neared. By the time trading ended, Republicans and Democrats still hadn't reached a budget compromise — but investors were betting that they would.
It was a dramatic day on what turned out to be a strong year for stocks. The Standard & Poor's 500 index rose 13.4 percent for the year, after finishing flat in 2011. It was the index's best year since 2009, and it came despite overhanging problems like Europe's debt crisis and anemic U.S. growth, bringing U.S. indexes close to their highs reached before the 2008 financial crisis.
Including dividends, the gain for the S&P 500 was even higher — 16 percent.
The close Monday 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. It also marked a turnaround after five straight days of "cliff"-influenced losses. The Dow Jones industrial average and the Standard & Poor's 500 both climbed more than 1 percent. The Nasdaq composite index rose 2 percent.
Stocks fell at the opening of trading Monday and struggled for direction throughout the morning. The indecisiveness overlaid a day of dramatic budget negotiations in Washington, where lawmakers were trying to hammer out a new budget deal to avert the "fiscal cliff." That refers to automatic tax increases and government spending cuts that will kick in without a budget deal.
Stocks jerked higher at midday following reports that the bare outline of a deal to avoid the "cliff" had been knit together. The gains faded after President Barack Obama said in the early afternoon that a compromise was "within sight," but not finalized. Then, in the late afternoon, the indexes shot higher again. Congressional Republicans and the Democratic White House said they had agreed on some measures, but still had no final deal in hand.
At the close of trading, Dow Jones industrial average was up 166.03 points, finishing the year at 13,104.14. That's a gain of 7.3 percent for the year, its fourth straight year of gains.
The S&P 500 rose 23.76 to 1,426.19. The Nasdaq composite climbed 59.20 to 3,019.51. For the year the Nasdaq rose 15.9 percent.
With the "fiscal cliff" still closing in, investors' opinions about its potential impact varied, making its long-term effect on the market hard to guess.
Some investors are unruffled. They think that even if the U.S. does go over the "cliff," it would be more akin to the anti-climactic Y2K scare than a true Armageddon. The "cliff's" impact would be felt only gradually, they reason. For example, workers might get more taxes withheld from their first couple of paychecks in the new year, but it's not as if they'd have to pay all their higher taxes up front on Tuesday. And Congress could always retroactively repeal those higher taxes.
Others are more concerned. The higher taxes and lower government spending could take more than $600 billion out of the U.S. economy and send it back into recession. Investors would have no good read on the country's long-term policy for taxes and spending.
The psychological impact — the U.S. would essentially be broadcasting that its lawmakers can't compromise — would also hurt.
"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."
Tim Speiss, partner in charge of the personal wealth advisers practice at EisnerAmper in New York, followed the "cliff" negotiations on Monday and wondered if the U.S. would get its debt rating cut again. The Standard & Poor's ratings agency cut its rating of the U.S. government amid similar negotiations in August 2011, when lawmakers were arguing over the government's borrowing limit. S&P said at the time that the "political brinksmanship" highlighted how "America's governance and policymaking (is) becoming less stable, less effective, and less predictable." Its rating cut sent the stock market into a tailspin.
The other major ratings agencies, Moody's and Fitch, have suggested that they might lower their ratings of the U.S. because of the "fiscal cliff."
"That is, unfortunately, the big story," Speiss said.
It's also one of the only stories. There's been little other news to trade on during the holiday season, giving the "fiscal cliff" drama outsized influence. No major companies are scheduled to report earnings this week. The most significant economic indicator scheduled for this week, the government's monthly jobs report, won't be released until Friday.
The yield on the benchmark 10-year Treasury note rose to 1.76 percent from 1.70 percent late Friday, a sign that investors were moving money into stocks.
Some of the best-performing stocks for the year were those that were making up for deep losses in 2011. Homebuilder PulteGroup nearly tripled after falling for five of the previous six years. Appliance maker Whirlpool and Bank of America more than doubled over the year, after falling by double-digit percentages in 2011.
Some of the worst performers of 2012 were Best Buy, Hewlett-Packard and J.C. Penney. All are struggling to keep up with competitors who have adapted more quickly to changing technologies and customer tastes. They were all up for the day, but were all down at least 44 percent for the year.

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A surprisingly good vintage as market logs gains

 If you'd told investors what was going to happen in 2012 — U.S. economic growth at stall speed, an intensifying European debt crisis, a slowdown in China, fiscal deadlock in Washington, decelerating corporate earnings growth — and asked how the stock market would perform, few would have predicted a good year.
But that's just what they got.
The Dow Jones industrial average, the Standard & Poor's 500 and the Nasdaq composite index all ended the year substantially higher, despite losing ground in the final days of year as concerns about the looming "fiscal cliff" mounted.
The Dow gained 7 percent for the year, its fourth consecutive annual advance, having started the year at 12,217. The S&P 500, which started the year at 1,257, is up 13 percent, beating the 7.8 percent average annual gain of the past 20 years. The Nasdaq also logged a better-than-average gain, 16 percent.
Including dividends, the total return on the S&P 500 index was even better: 16 percent.
Financial companies led the gains among S&P 500 stocks, advancing 26 percent, as banks continued their restructuring efforts after the recession. Bank of America more than doubled, gaining $6.05 to $11.61 and Citigroup advanced $13.25, or 50 percent, to $39.56. Utilities, the best-performing industry group last year, was the only sector of 10 industry groups in the index to decline, dropping 2.9 percent.
"There's been a lot thrown at this market, and it's proven to be very resilient," said Gary Flam, a portfolio manager at Bel Air Investment Advisors in California. "Here we are at the end of the year, and it's still relatively strong."
Stocks started the year on a tear, with optimism about an improving job market and a broader economic recovery providing the backdrop to the S&P 500's best first-quarter rally in 14 years.
The index advanced 12 percent by the end of March, closing the quarter at 1,408, its highest in almost four years, with financial companies and technology firms leading the charge. The Dow ended the first quarter at 13,212, logging an 8 percent gain.
Apple was one of the star performers of the first quarter and was probably the year's most talked-about company.
The popularity of the iPhone and iPad led to staggering sales growth that helped push its stock up 48 percent to almost $600 at the end of March. Apple also announced a dividend and overtook Exxon Mobil as the U.S.'s most valuable company.
At the start of the second quarter, the intensifying European debt crisis and concerns about the impact that it would have on global economic growth prompted a sell-off.
By the start of June, U.S. stocks had given up the year's gains. Borrowing costs for Spain surged and investors fretted over the outcome of Greek elections that had the potential to pull the euro currency bloc apart.
The outlook for growth in China, the world's second-largest economy, also began to weigh on investors' minds. Economic growth there slowed to 8.1 percent in the first quarter as export demand waned, and investors worried that it would keep falling.
The Dow fell as low as 12,101 June 4. The S&P dropped to 1,278 June 1.
The second quarter was also marred by Facebook's initial public offering.
The stock sale was one of the most keenly anticipated initial public offerings in years, but investors didn't "like" the $16 billion market debut. The social network priced its IPO at $38 per share, and the stock started to fall soon after the first day of trading on concern about the company's mobile strategy.
Facebook closed as low as $17.73 on Sept. 4 before recovering some of the ground it lost to close the year at $26.62.
Company earnings reports were also starting to make uncomfortable reading for investors. Earnings growth for S&P 500 companies fell as low as 0.8 percent in the second quarter, according to S&P Capital IQ data.
The stock market only recovered its poise after the European Union put together loans to bail out Spain's banks on June 10 and the head of the European Central Bank, Mario Draghi, pledged to do "whatever it takes" to save the euro.
Speculation that the Federal Reserve was set to provide the economy with more stimulus to prevent it from slipping back into recession also bolstered stocks.
The rally even survived a blip when a software glitch at trading firm Knight Capital threw stock prices into chaos Aug. 1.
The firm said the problem was triggered by new trading software it installed. Erroneous orders were sent to 140 stocks listed on the New York Stock Exchange, causing sudden price swings and surging trading volume.
Apple launched the iPhone 5, the latest version of its smartphone, in September, and the company's stock climbed to a record close of $702.10 on Sept. 19. That gave Apple a market value of $658 billion, and many analysts predicted more gains lay ahead.
By the time Fed Chairman Ben Bernanke announced Sept. 13 that the U.S. central bank would start a third round of its bond-purchase program, which is intended to push longer term interest rates lower and encourage borrowing and investment, the S&P 500 had surged 14 percent from its June 1 low. A day later, the index peaked at five-year high of 1,466. The Dow Jones reached its peak for the year of 13,610, Oct. 5.
As is often the case on Wall Street, investors "bought the rumor and sold the fact," and quickly turned their attention to the challenges that lay ahead.
Analysts had also been cutting their outlook for growth in the final quarter of the year. At the start of the second quarter, estimated earnings growth for the period was 15.7 percent. That forecast had fallen to 3.4 percent by Dec. 27.
"One of the blessings that supported the stock market's moves in prior years was earnings growth," said Lawrence Creatura, a portfolio manager at Federated Investors. "That's true this year, but at a decelerating rate. It's not gone unnoticed that earnings growth is slowing, and many forecasts now include a full stall."
Apple's halo also began to slip in the final three months of the year. Its iPad Mini tablet, launched Nov. 2, met with lukewarm reviews, there were hints of unrest among its executive ranks. Investors began to fret that the intensifying competition in the smartphone market would crimp Apple's profits. The stock tumbled, and despite rallying in recent days is still down 27 percent from its September peak.
The year's final twist came in Washington.
Stocks wavered ahead of a presidential election that at times seemed too close to call, and while President Barack Obama ultimately reclaimed the White House by a comfortable margin, the Republicans retained control of the House.
The divided government set the stage for a tense end to the year as Democrats and Republicans sought to thrash out a budget plan that would avoid the U.S. falling off the "fiscal cliff," a series of tax hikes and government spending cuts that economists say would push the economy back into recession.
Initially, markets fell as much as 5 percent in the 10 days after the elections as investors worried that a divided government would not be able to agree on a budget plan to cut the U.S. deficit.
While the S&P 500 managed to recoup those losses by December on optimism that a deal would be reached, some investors are still urging caution. Any agreement will still be "ill-tasting medicine" to the economy, as it will almost certainly involve both spending cuts and tax hikes, says Joe Costigan, director of equity research at Bryn Mawr Trust Company.
"The question is, how much will the drag from the government be offset by business and personal spending," says Costigan. "The market has reasonable expectations for growth priced in, so I don't think we're going to see a big run-up.

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Housing and jobs key to lifting S&P toward record

It may be a big if, but assuming Washington lawmakers can get past the "fiscal cliff," many analysts say that the outlook for stocks next year is good, as a recovering housing market and an improving jobs outlook helps the economy maintain a slow, but steady recovery.
An advance of 10 percent in 2013 would send the S&P 500 toward, and possibly past, its record close of 1,565 reached in October 2007.
A mid-year rally in 2012 pushed stocks to their highest in more than four years. Both the Standard & Poor's 500 and the Dow Jones industrial average gained in 2012. Those advances came despite uncertainty about the outcome of the presidential election and bouts of turmoil from Europe, where policy makers finally appear to be getting a grip on the region's debt crisis.
"As you remove little bits of uncertainty, investors can then once again return to focusing on the fundamentals," says Joseph Tanious, a global market strategist at J.P. Morgan Funds. "Corporate America is actually doing quite well."
Although earnings growth of S&P 500 listed companies dipped as low as 0.8 percent in the summer, analysts are predicting that it will rebound to average 9.5 percent for 2013, according to data from S&P Capital IQ. Companies have also been hoarding cash. The amount of cash and cash-equivalents being held by companies listed in the S&P 500 climbed to an all-time high $1 trillion at the end of September, 65 percent more than five years ago, according to S&P Dow Jones Indices.
By the time trading ended Monday, Republicans and Democrats still hadn't reached a budget compromise — but investors were betting that they would — after President Barack Obama said that a compromise was "within sight," but not finalized. Without a budget agreement, millions of Americans face the prospect of higher taxes and the government would be forced to slash spending, measures that would probably push the economy into recession, economists say.
Assuming a budget deal is reached in a reasonable amount of time, investors will be more comfortable owning stocks in 2013, allowing valuations to rise, says Tanious.
Stocks in the S&P 500 index are currently trading on a price-to-earnings multiple of about 13.5, compared with the average of 17.9 since 1988, according to S&P Capital IQ data. A lower-than-average ration suggests that stocks are cheap.
The stock market will also likely face less drag from the European debt crisis this year, said Steven Bulko, the chief investment officer at Lombard Odier Investment Managers. While policy makers in Europe have yet to come up with a comprehensive solution to the region's woes, they appear to have a better handle on the region's problems than they have for quite some time.
"There is still some heavy lifting that needs to be done in Europe," said Bulko. Now, though, "we are dealing with much more manageable risk than we have had in the past few years."
Next year may also see an increase in mergers and acquisitions as companies seeks to make use of the cash on their balance sheets, says Jarred Kessler, global head of equities at broker Cantor Fitzgerald.
While the number of M&A deals has gradually crept higher in the past four years, the dollar value of the deals remains remains well short of the total reached five years ago. U.S. targeted acquisitions totaled $964 billion through Dec. 27, according to data tracking firm Dealogic. That's slightly down from last year's total of $1 trillion and about 40 percent lower than in 2007, when deals worth $1.6 trillion were struck.
M&A deals are good for stock prices because the acquiring company typically pays a premium for the one it's buying.
Falling interest rates also set off a rally in the bond market. Concerns about swings in stock prices prompted investors to switch money out of stocks and into bond funds. If investors decide that the bond rally may be nearing an end, that flow of funds may be reversed, providing a support for stocks.
"Equities are the best house in a bad neighborhood," says Cantor's Kessler. "Bonds are, not priced to euphoria, but they are definitely rich compared to equities right now."
Not all investors are as sanguine about the prospects for 2013.
The rally in stocks in 2012 had less to do with company earnings and the economy and more to do with monetary stimulus from the Federal Reserve and other central banks around the world, says David Wright, a managing director and co-founder at Sierra Investment Management in Santa Monica, Calif.
Federal Reserve Chairman Ben Bernanke announced Sept. 13 that the central bank would add another round to its bond-purchase program, known as "quantitative easing" on Wall Street, which is intended to lower borrowing costs and boost growth. Speculation that more stimulus was coming had pushed the S&P 500 index to 1,466, its highest close of the year, a day earlier. The Dow peaked for the year at 13,610, Oct. 5.
"The Fed has done everything it can do and is probably pretty close to having used its last bullet," said Wright. "It's been a good year for stocks, but we think that's an artifact of monetary stimulus."
This year's peaks in the Dow and the S&P 500 won't be surpassed in 2013 and stocks may even slump in the first quarter, as investors lower their earnings expectations, Wright says. The money manager also says that any budget plan, regardless of the details, will be negative for stocks as it will involve higher taxes and lower government spending.
Wells Fargo Securities market analyst Gina Martin Adams also says companies will struggle in the first half of the year as the economy flirts with recession. Export growth is slowing and policymakers are struggling to come up with a plan to reduce the budget deficit.
The bank recommends that investors add to their holdings of financial and utilities stocks because low rates should help support steady earnings growth in the early part of the 2013. Financial stocks advanced 25 percent in 2012, making them the best performing industry group in the S&P 500. Utility stocks fell 3.4 percent, the worst performing of 10 industry groups in the index. The bank says investors should reduce their exposure to so-called consumer discretionary stocks, such as hotels and restaurant companies, because consumer spending will likely take a hit next year as taxes rise.
With a backdrop of historically low interest rates and an economy that still needs to address its fiscal imbalances, investors should remain realistic about the returns they are going to get from the stock market, says Darell Krassnoff, managing director at Bel Air Investment Advisors.

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