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Stocks up a bit as investors watch the Fiscal Cliff dance

10:51 AM, Dec 18, 2012   |    comments
A trader on the floor of the New York Stock Exchange Dec. 17, 2012.(Photo: Andrew Burton Getty Images)
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NEW YORK -- Stocks moved up a bit Tuesday on signs that the White House and Congress are moving closer to a budget deal.

A new proposal softens President Obama's long-held insistence that taxes rise on individuals earning more than $200,000 and families making more than $250,000. He is now offering a new threshold of $400,000 and lowering his 10-year tax revenue goals.

The laser-like focus of Wall Street - which is betting that there will be a deal to prevent tax hikes and government spending cuts that could cause another recession - has started to exclude lower-ranking negotiators from each side.

The most recent meetings between Obama and House Speaker John Boehner, including a 45-minute White House powwow Monday, are raising hopes a handshake could be in the offing.

Investors' optimism pushed the Dow Jones industrial average 100 points higher Monday to end above 13,235. The perception of progress in the negotiations and that a deal will happen before the cliff's edge has boosted the Dow some 4% the past month.

Signs of progress emerged Monday after Boehner reportedly pulled back from saying he would never approve higher taxes for the wealthy to being willing to OK a tax hike on those earning $1 million or more a year.

"Investors are watching Obama and Boehner the way they watch and weigh every word from Federal Reserve Chairman Ben Bernanke on Fed (policy-making) meeting days," says JJ Kinahan, chief derivatives strategist at brokerage TD Ameritrade. "That will continue until we have a deal or fall off the cliff."

For investors though, there's a crucial difference between Obama and Boehner forging a deal and the Fed deciding to change its interest-rate policy.

"You know what time Bernanke is going to announce his policy moves," he says. "But Obama and Boehner can make an announcement at any time of the day. That makes it treacherous."

Associated Press

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