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German Data, Fiscal Cliff Optimism Push Stocks Higher - U.S. Commentary


U.S. stocks ended Tuesday's trading mostly higher, adding to the modest gains posted in the previous session. The markets benefited from some upbeat German economic data as well as optimism about the looming fiscal cliff.

The major averages finished the session well off their best levels of the day but remained firmly positive. The Dow rose 78.56 points or 0.6 percent to 13,248.44, the Nasdaq jumped 35.34 points or 1.2 percent to 3,022.30 and the S&P 500 climbed 9.29 points or 0.7 percent to 1,427.84.

With the strong gains on the day, the major averages all ended the session at their best closing levels in well over a month.

The strength on Wall Street was partly due to the release of a report from the Center for European Economic Research showing a bigger than expected improvement in German investor confidence.

The report showed that the expectations index climbed to a positive 6.9 in December from a negative 15.7 in November, turning positive for the first time since May. The current conditions index edged up to 5.7 from 5.4.

Positive sentiment was also generated by a report from the Wall Street Journal indicating that negotiations between the White House and Republican House Speaker John Boehner, R-Ohio, have progressed steadily in recent days.

Citing people familiar with the matter, the Journal said the talks have taken a marked shift recently, becoming more "serious."

However, the optimism was partly offset by comments from Senate Majority Leader Harry Reid, D-Nev., who said it would be "extremely difficult" to reach an agreement before Christmas.

The higher close also came as traders looked ahead to the Federal Reserve's monetary policy announcement on Wednesday.

Many analysts expect the Fed to announce a new round of Treasury securities purchases to replace its "Operation Twist" program, which expires at the end of the year.

Meanwhile, traders also digested a report from the Commerce Department showing that the U.S. trade deficit came in narrower than expected in the month of October.

The Commerce Department said the U.S. trade deficit widened to $42.2 billion in October from a revised $40.3 billion in September. Despite the increase by the size of the deficit, it still came in narrower than the $42.8 billion deficit forecast by economists.

A separate Commerce Department report said wholesale inventories increased by more than expected in October, although wholesale sales showed a notable decrease.

Sector News

Semiconductor stocks turned in some of the market's best performances on the day, resulting in a 1.9 percent gain by the Philadelphia Semiconductor Index. With the gain, the index ended the session at its best closing level in over two months.

Rubicon Technology (RBCN) helped to lead the semiconductor sector higher, surging up by 8.8 percent, while Cirrus Logic (CRUS) and NXP Semiconductors (NXPI) also posted strong gains.

Considerable strength was also visible among airline stocks, as reflected by the 2 percent gain posted by the NYSE Arca Airline Index. The gain lifted the index to its best closing level in well over a year.

Within the airline sector, Delta (DAL) advanced by 5.1 percent after announcing a deal to acquire a 49 percent stake in Virgin Atlantic for $360 million.

Steel stocks also extended a recent upward move, driving the NYSE Arca Steel Index up by 1.6 percent to a nearly two-month closing high. Internet, software, and biotech stocks also posted notable gains.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher on Tuesday. Hong Kong's Hang Seng Index and Australia's All Ordinaries Index rose by 0.2 percent and 0.4 percent, respectively. However, Japan's Nikkei 225 Index bucked the uptrend and edged down by 0.1 percent.

The major European markets also moved to the upside on the day. The U.K.'s FTSE 100 Index inched up by 0.1 percent, while the German DAX Index and the French CAC 40 Index advanced by 0.8 percent and 0.9 percent, respectively.

In the bond market, treasuries closed moderately lower, more than offsetting the modest gains posted in the previous session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 3.3 basis points to 1.649 percent.

Looking Ahead

Trading on Wednesday is likely to be driven by reaction to the Fed's monetary policy announcement, which is due at about 12:30 pm ET.

Following the announcement, traders are likely to keep an eye on Fed Chairman Ben Bernanke's press conference.

by RTTNews Staff Writer

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