US markets extend gains on hopes of fiscal-cliff deal

The US markets edged higher on Tuesday, extending the gains into a second session on signs of progress on Capitol Hill in reaching an accord to avoid steep spending cuts and tax increases next year. House Republican leaders are readying a bill to increase taxes on incomes of $1 million and above as fiscal-cliff talks continue. Boehner stated that President Obama’s latest offer on taxes and spending is not balanced and that the Republicans’ ‘plan B’ tax bill would be on the House floor this week. He added that backup bill would also address the alternative minimum tax and the estate tax but not spending cuts. Hopes for a budget deal were lifted after President Barack Obama reportedly cut his tax-revenue demand to start tax-rate hikes at $400,000 in income instead of $250,000. Obama dropped his long-held insistence that rates rise for incomes of $250,000 and above.

On the economy front, a gauge of confidence among home builders rose in December to the highest level since April 2006, with respondents encouraged by declining inventory and good sales conditions. The National Association of Home Builders/Wells Fargo Housing Market Index rose two points to a seasonally adjusted level of 47 - matching estimates from a downwardly revised 45 in November. A prior estimate for November pegged the level at 46. Separately, the amount the US owes to the rest of the world, known as the current-account deficit, fell sharply for the second straight quarter, reaching its lowest in nearly two years. The nation’s current-account balance fell to $107.5 billion in the third quarter, 9% below an upwardly revised $118.1 billion in the second quarter, the Commerce Department stated. The deficit had fallen 11.6% in the second quarter.

In Europe, the European Central Bank President Mario Draghi stated that the establishment of the Single Supervisory Mechanism will contribute to restoring confidence in the banking sector across the euro area. Draghi reiterated that economic weakness in the euro area is to extend into next year with a very gradual recovery in the second half of the year. Besides, the International Monetary Fund approved the disbursement of $1.17 billion to Ireland under the bailout program, bringing total disbursements under the Extended Fund Facility to about €19.37 billion or about $25.49 billion. The arrangement for Ireland is part of a financing package amounting to €85 billion or $111.9 billion, also supported by the European Financial Stabilization Mechanism and European Financial Stability Facility, bilateral loans from Denmark, Sweden, and the United Kingdom, and Ireland’s own contributions. Spain raised €3.52 billion in an auction of 84- and 182-day bills at lower yields. Separately, Greece sold €1.3 billion of three-month bills at an average yield of 4.11%, down from 4.2% at the previous auction on November 13.

The Dow Jones Industrial Average gained 115.57 points or 0.87 percent, to close at 13,351.00, the S&P 500 jumped by 16.43 points or 1.15 percent, to finish at 1,446.79, while the Nasdaq rose by 43.93 points or 1.46 percent, to end at 3,054.53.

Indian ADRs closed mostly in green on Tuesday, ICICI Bank was up 0.59%, Infosys was up 0.58%, Tata Motors was up 0.39% and Tata Communications was up 0.17%. On the other hand, Dr. Reddy’s Lab was down by 0.14%.