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Fiscal And Economic Hopes Could Keep Rally Alive

The major U.S. index futures are pointing to a higher opening on Thursday, with sentiment reflecting the optimism that has been welling up regarding the resolution of the fiscal cliff. Separate reports released earlier in the day showed that jobless claims declined sharply and third quarter GDP growth was upwardly revised roughly in line with estimates.

The pending home sales report due shortly after the markets may also shed light on the economy's strength. The positive economic tone along with fiscal cliff hopes may keep the buying momentum alive, although some profit taking cannot be ruled out after the recent strength.Retail sales reports from chain stores have been rather lukewarm.

Optimism concerning the tackling of the fiscal cliff without any major setback to the economy lifted the mood on Wall Street on Wednesday. After opening lower, the major U.S. averages began paring their losses by late morning trading. The reversal in sentiment followed comments by House Speaker John Boehner asserting that Republicans could agree with Democrats in clinching a deal to avert the fiscal cliff. The averages moved above the unchanged line by the mid-session and advanced steadily thereafter before closing notably higher.

The Dow Industrials ended 106.98 points or 0.83 percent higher at 12,985 and the S&P 500 Index closed at 1,410, up 10.99 points or 0.79 percent, while the Nasdaq Composite ended up 23.99 points or 0.81 percent at 2,992.

Twenty-six of the Dow components closed higher and one stock ended unchanged, while the remaining three stocks retreated. American Express (AXP), Chevron (CVX), Hewlett-Packard (HPQ), Wal-Mart (WMT), Merck (MRK) and Pfizer (PFE) were among the biggest gainers of the session.

Airline, oil, brokerage, retail and semiconductor stocks advanced strongly in the session.

On the economic front, new home sales fell 0.3 percent month-over-month in October to a seasonally adjusted annual rate of 368,000. Sales improved in the Midwest and the West, while sales in the Northeast and the South declined. The median price of a new home rose 5.7 percent year-over-year but was down 4.2 percent month-over-month to $237,700.

The Beige Book released yesterday said economic activity remained mixed across the twelve Federal Reserve districts. Consumer spending grew at a moderate pace, while manufacturing activity weakened. Meanwhile, agricultural conditions were termed as mixed. Expectations concerning the holiday sales season were mostly upbeat.

Currency, Commodity Markets

Crude oil futures are gaining $1.10 to $87.59 a barrel after slipping $0.69 to $86.49 a barrel on Wednesday.

The previous session's pullback came despite the perk up in risk appetite and amid the release of the inventory report, which showed that crude oil stockpiles edged down by 0.3 million barrels to 374.1 million barrels in the week ended November 23rd. Inventories were above the upper limit of the average range.

Distillate inventories decreased by 0.8 million barrels and remained well below the lower limit of the average range. Meanwhile, gasoline stockpiles rose by 3.9 million barrels and were in the lower half of the average range. Refinery capacity utilization averaged 86.9 percent over the four weeks ended November 23rd compared to 86.7 percent over the four weeks ended November 16th.

The most actively traded gold futures for February are currently adding $5.10 to $1,723.90 an ounce. On Wednesday, the December contract ended down $25.80 at $1,716.50 an ounce.

Among currencies, the U.S. dollar is trading at 82.11 yen compared to the 82.08 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is trading at $1.2989 compared to yesterday's $1.2953.

Asia

The major Asian markets advanced, as the fiscal cliff optimism rubbed off on the markets in the region. In the process, stocks largely ignored weak retail sales data from Japan. However, the Chinese market bucked the uptrend and declined for the fourth straight session in a late-day sell-off.

Japan's Nikkei 225 average opened higher and moved broadly sideways until late afternoon trading. Thereafter, the index legged up further before closing up 92.53 points or 0.99 percent at 9,401.

A majority of the index components advanced in the session, with Kobe Steel, Teijin, Toyobo, Nippon Sheet Glass, Toho Zinc and Unitika leading the gains.

Australia's All Ordinaries saw a nervous opening but advanced steadily thereafter before closing up 27.50 points or 0.62 percent at 4,490. The market witnessed broad based strength, with healthcare stocks seeing notable buying interest. Energy and material stocks also advanced solidly.

Hong Kong's Hang Seng Index ended at 21,923, up 213.91 points or 0.99 percent. On the other hand, China's Shanghai Composite Index closed 10.04 points or 0.51 percent lower at 1,964.

A report released by Japan's Ministry of Economy, Trade and Industry showed that Japanese retail sales fell 1.2 percent year-over-year in October. Economists expected a more modest 0.8 percent drop. On a monthly basis, retail sales rose a seasonally adjusted 0.7 percent, also trailing expectations for a 1 percent increase.

Europe

European stocks are also trading higher after Boehner's remarks and President Barack Obama's assertion that a deal is likely before Christmas encouraged traders to add to their positions.

Norsk Hydro said at its Capital Markets Day that it expects aluminum demand outside of China to increase 2-4 percent in 2013. The company also sees solid global long-term growth of 4-6 percent annually over the next 10 years.

Zurich Insurance said it is on track to reduce costs in mature markets by $500 million by 2013. The company also said it was making progress towards reaching its 2013 targets.

U.K. home improvement retailer Kingfisher reported a decline in its third quarter profits due to softness in France and the U.K. Siemens (SI) announced a deal to buy the rail automation business of Invensys for 2.2 billion euros.

On the economic front, a report released by the U.K. Nationwide Building Society showed that house prices in the U.K. fell for the ninth straight month in November. House prices fell 1.2 percent year-over-year following a 0.9 percent drop in October.

The German Federal Labor Agency reported that Germany's unemployment rate was unchanged at 6.9 percent in November. That said, the number of unemployed people rose 16,000 from the previous month, although the increase was not as steep as the 19,000 expected by economists.

Meanwhile, a report released by the German Federal Statistical Office showed that the nation's unemployment rate calculated based on ILO standards eased to 5.4 percent in October compared to 5.7 percent in the year-ago period.

U.S. Economic Reports

Economic activity in the U.S. increased by more than previously estimated in the third quarter, according to a report released by the Commerce Department, with the upward revision reflecting bigger than previously estimated increases in private inventory investment and exports.

The report showed that GDP increased at an annual rate of 2.7 percent in the third quarter compared to the 2.0 percent growth previously reported. Economists had expected the pace of GDP growth to be upwardly revised to 2.8 percent.

After seeing considerable volatility in recent weeks, first-time claims for U.S. unemployment benefits showed a relatively modest decrease in the week ended November 24th, according to a report released by the Labor Department.

The report said jobless claims dipped to 393,000, a decrease of 23,000 from the previous week's revised figure of 416,000. Economists had expected jobless claims to fall to 390,000 from the 410,000 originally reported for the previous week.

At 10 am ET, the National Association of Realtors is scheduled to release its pending home sales index for October. The consensus expectations call for a 1 percent increase by the index compared to the 0.3 percent increase in September.

The pending home sales index rose just 0.3 percent month-over-month in September after declining 2.6 percent in August. Economists had expected a 2.5 percent increase. Sales were up in the Northeast, South and West but fell in the Midwest.

A manufacturing index compiled by the Kansas City Federal Reserve to gauge the manufacturing activity in the region is due at 11 am ET. Economists expect the index to have improved to -1 in November from -4 in October.

Stocks in Focus

AvlonBay Communities (AVB) announced that it has priced its public offering of 14.5 million shares at $130 per share. Meanwhile, Equity Residential (EQR) has priced its offering of 19 million shares at $54.75 per share. Both stocks were priced at a discount to their closing price on Wednesday.

Abbott (ABT) said its board has approved the separation of its research-based pharma business, which will be known as AbbVie. The company also declared a special dividend of all outstanding shares of AbbVie common stock, offering 1 AbbVie common stock for every 1 share of Abbott share held. The splinter company will begin to trade on the NYSE under the ticker ABBV on January 2nd, 2013.

Kroger (KR) reported better than expected third quarter profits and also lifted its outlook for the full year.

Tiffany's (TIF) third quarter earnings declined 30 percent and were below Wall Street view. Worldwide net sales for the quarter rose 4 percent, but missed the consensus estimate. The company also lowered its full-year guidance.

Humana (HUM) said it has received anti-trust clearance for its impending acquisition of Metropolitan Health Networks (MDF). The company expects the deal to close by the end of the year after approval by Metropolitan Health shareholders at a shareholding meeting scheduled to be held on December 21, 2012.

NCR (NCR) announced an agreement to buy retail software and services provider Retalix (RTLX) for $30 per share in cash or $650 million in total.

Disney (DIS) said its board has approved a 25 percent increase in its annual cash dividend to 75 cents per share.

Semtech (SMTC) reported third quarter non-GAAP net income of 53 cents per share compared to 52 cents per share last year. Net revenues rose 29.8 percent to $160.9 million. The earnings exceeded estimates, while the revenues were shy of estimates. For the fourth quarter, the company expects non-GAAP earnings of 41 to 45 cents per share on net sales of $146 million to $152 million. The guidance was fairly positive.

La-Z-Boy (LZB) reported second quarter earnings of 12 cents per share, including a charge of 3 cents per share, compared to 15 cents per share last year. Net sales rose 4.8 percent to $322.3 million. The results trailed estimates. Meanwhile, the company said it is reinstating the dividend.

Guess? Inc. (GES) reported third quarter earnings of 43 cents per share, lower than 71 cents per share in the year-ago period. Consolidated revenues fell 2 percent to $629 million. The earnings were a penny below estimates, while the revenues exceeded expectations. The company updated its full year guidance and now expects earnings of $2.05-$2.15 per share on net revenues of $2.62 billion to $2.64 billion. At the same time, the company's board declared a special dividend of $1.20per share.

Aeropostale (ARO) reported third quarter earnings of 31 cents per share on revenues of $605.9 million, up 2 percent year-over-year. For the fourth quarter, the company expects adjusted earnings of 36-41 cents per share. The results exceeded estimates, while the guidance was weak.

Coldwater Creek (CWTR) said its co-founder, Chairman and CEO Dennis Pence will retire as its CEO, effective December 31st. The company also announced the appointment of its president and chief merchandising officer Jill Brown Dean as its CEO, effective January 1st, 2013. Separately, the company announced an adjusted loss of 45 cents per share for its third quarter, while its sales rose slightly to $187.5 million. For the fourth quarter, the company expects an adjusted net loss of 55-65 cents per share. The results were better than expected, while the guidance was weak.

Mentor Graphics (MENT), Pacific Sunwear (PSUN) and Zumiez (ZUMZ) are among the companies due to release their quarterly results after the close of trading.

by RTT Staff Writer

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