US markets slip on budget concern

The US markets fell sharply on Wednesday, after a two-session rally as negotiations to avoid deep spending cuts and tax hikes seemed to hit a rocky spot. At a news conference President Barack Obama said that Republicans find it very hard to say yes to him, while House Speaker John Boehner, the top Republican in Congress, called the White House irrational. President Barack Obama stated that it’s puzzling that Republicans haven’t accepted his latest offer, and House Speaker John Boehner vowing to pass a GOP bill that would cut taxes for most Americans. Boehner added that the House on Thursday will approve the Republican Plan B to extend Bush-era tax cuts for Americans earning less than $1 million. If the Democratic-controlled Senate doesn’t pass it, Boehner raised concern that, Obama would be responsible for the largest tax increase in American history. House Speaker John Boehner’s ‘Plan B’ is Topic A in Washington as Republicans and the White House try to avert the fiscal cliff. Plan B also sets at 20% the tax rates for capital gains and dividends on income higher than $1 million - but keeps the current 15% rate for those making less than $1 million. Without a fiscal cliff agreement, rates on capital gains go up to a maximum of 23.8%. For dividends, rates go even higher, from 15% now to 43.4%. However, Obama’s latest offer includes raising tax rates on income above $400,000; increasing rates on capital gains and dividends to 20% from 15% for incomes above $250,000; and billions of dollars in cuts to health care and other programs. While Obama has backed off on earlier proposals - including a $250,000 threshold for higher income taxes - Republicans continue to say that the president’s fiscal-cliff plan is flawed.

On the economy front, before the market opening, the government reported construction on new homes fell, while building permits climbed 3.6% in November. The construction on new US homes fell 3% in November to a seasonally adjusted annual rate of 861,000, led by declines in the West and Northeast, the Commerce Department reported. The US starts rate for October was downwardly revised to 888,000 from a prior estimate of 894,000.

In Europe, Standard and Poor’s upgraded Greece’s credit rating from selective default to B-, citing the completion of the successful completion of the debt buyback and winning the approval by the Euro group of a loan disbursement under the second economic adjustment program. The debt rating agency stated that the euro zone member states decision to provide material cash flow relief to Greece as indicative of their determination to restore stability to Greek finances, and to preserve the country’s euro zone membership. Besides, Euro area construction output declined in October, according to data released by Eurostat, the statistics office of the European Union. From a month ago, construction output fell a seasonally adjusted 1.6% in the euro area in October, after a 1.3% decline in September. In the EU27, construction rose 1.6% in October compared to a 1.6% decline in September. Separately, Germany’s business confidence improved more than anticipated in December, according to a survey from the Ifo Institute. The headline business climate index rose to 102.4 in December from 101.4 in November.

The Dow Jones Industrial Average lost 98.99 points or 0.74 percent, to close at 13,252.00, the S&P 500 dropped by 10.98 points or 0.76 percent, to finish at 1,435.81, while the Nasdaq edged lower by 10.17 points or 0.33 percent, to end at 3,044.36.

Indian ADRs closed mixed on Wednesday, HDFC Bank was down by 0.19%, MTNL was down by 0.05% and Tata Communications was down 0.02%. On the other hand, Infosys was up 0.35% and Tata Motors was up 0.30%.