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Stocks Rally On Upbeat German Data, Optimism On Fiscal Cliff - U.S. Commentary


Stocks have moved sharply higher over the course of the trading day on Tuesday, adding to the modest gains posted in the previous session. The markets have benefited from some upbeat German economic data as well as optimism about the looming fiscal cliff.

The major averages have moved roughly sideways in recent trading, hovering near their best levels of the day. The Dow is up 120.59 points or 0.9 percent at 13,290.47, the Nasdaq is up 41.96 points or 1.4 percent at 3,028.92 and the S&P 500 is up 14.13 points or 1 percent at 1,432.68.

The rally on Wall Street is 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 has also been generated by a report from the Wall Street Journal indicating that negotiations between the White House and Republican House Speaker John Boehner 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."

The reported progress on talks between Obama and Boehner comes as a number of Republicans have indicated they would be willing to accept higher tax rates on wealthy Americans in exchange for significant spending cuts and reform to entitlement programs.

The strength on Wall Street also comes as traders look 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 are also digesting 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

Airline stocks are turning in some of the market's best performances in mid-day trading, with the NYSE Arca Airline Index up by 1.7 percent. With the gain, the index has risen to its best intraday level in well over a year.

Delta Air Lines (DAL) has helped to lead the sector higher, jumping by 5.9 percent after announcing a deal to acquire a 49 percent stake in Virgin Atlantic for $360 million.

Significant strength has also emerged among semiconductor stocks, as reflected by the 1.9 percent gain being posted by the Philadelphia Semiconductor Index. Strong gains by Rubicon Technology (RBCN) and NXP Semiconductors (NXPI) have helped lift the index to a two-month high.

Reflecting strength throughout the technology sector, software, internet, and computer hardware stocks are also posting strong gains.

Most of the other major sectors have also moved to the upside, with considerable strength visible among biotechnology, brokerage, and steel stocks.

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 have come under pressure, 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, is up by 3.6 basis points at 1.652 percent.

by RTTNews Staff Writer

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