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Fiscal Cliff Worries Weigh On Stocks Despite Upbeat Data - U.S. Commentary


With lingering concerns about the looming fiscal cliff overshadowing a batch of largely upbeat economic data, stocks came under pressure during trading on Thursday. Traders may also have been cashing in on the recent upward trend by the markets.

The major averages ended the session well off their worst levels of the day but still closed firmly in the red. The Dow fell 74.73 points or 0.6 percent to 13,170.72, the Nasdaq slid 21.65 points or 0.7 percent to 2,992.16 and the S&P 500 dropped 9.03 points or 0.6 percent to 1,419.45.

The weakness that emerged on Wall Street came amid indications that lawmakers in Washington continue to struggle to reach an agreement to avoid the fiscal cliff.

House Speaker John Boehner, R-Ohio, once again accused President Barack Obama of failing to provide a serious offer, claiming that the White House is not offering enough in spending cuts.

Boehner has made similar remarks for several days, while Democrats continue to attack the GOP for being unwilling to accept higher tax rates on wealthy Americans.

News that Obama and Boehner are due to meet at the White House this evening helped to lift stocks off their lows in late trading, although buying interest remained subdued.

The worries about the fiscal cliff overshadowed some upbeat economic data, including a report from the Labor Department showing that weekly jobless claims pulled back near a four-year low.

The report showed that jobless claims fell to 343,000 in the week ended December 8th, a decrease of 29,000 from the previous week's revised figure of 372,000. Economists had expected jobless claims to come in unchanged compared to the 370,000 originally reported for the previous week.

With the unexpected decrease, jobless claims fell to their lowest level since dropping to a four-year low of 342,000 in the week ended October 6th.

A separate report from the Commerce Department showed weaker than expected retail sales growth in the month of November, although a sharp drop in sales by gas stations offset strength in other sectors.

The report showed that retail sales increased by 0.3 percent in November following a 0.3 percent decrease in October. Economists had been expecting retail sales to increase by about 0.6 percent.

Excluding a 4.0 percent drop in sales by gas stations, retail sales rose by 0.8 percent in November compared to a 0.5 percent drop in October.

Traders also continued to digest yesterday's news that the Federal Reserve plans to replace its "Operation Twist" program, which expires at the end of the year, with the purchase of longer-term Treasury securities at a pace of $45 billion per month.

Sector News

Gold stocks turned in some of the market's worst performances on the day, moving lower along with the price of the precious metal. With gold for February delivery sliding $21.10 to $1,696.80 an ounce, the NYSE Arca Gold Bugs Index fell by 2.5 percent.

Significant weakness also emerged among oil service stocks, as reflected by the 1.7 percent loss posted by the Philadelphia Oil Service Index. A decrease by the price of crude oil contributed to the weakness in the sector, with crude for January delivery falling $0.88 to $85.89 a barrel.

Natural gas, biotechnology, and semiconductor stocks also came under pressure on the day, while considerable strength was visible among airline stocks. The NYSE Arca Airline Index rose by 1.4 percent to its best closing level in over a year.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Thursday. While Japan's Nikkei 225 Index surged up by 1.7 percent, Hong Kong's Hang Seng Index fell by 0.3 percent.

Meanwhile, the major European markets all moved to the downside on the day. The French CAC 40 Index edged down by 0.1 percent, while the U.K.'s FTSE 100 Index and the German DAX Index dipped 0.3 percent and 0.4 percent, respectively.

In the bond market, treasuries came under pressure, extending the downward move seen following yesterday's Fed announcement. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 3.1 basis points to 1.728 percent.

Looking Ahead

Developments in Washington are likely to remain in focus on Friday, although traders are also likely to keep an eye on the release of a pair of U.S. reports on consumer prices and industrial production.

by RTTNews Staff Writer

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