December 31st, 2012

Mini S&P Futures – U.S. stocks rose, after the biggest weekly drop for the Standard & Poor’s 500 Index in about two months, amid speculation Congress will reach a deal to head off more than $600 million in spending cuts and tax increases.

Hewlett-Packard Co. and Caterpillar Inc. jumped more than 1.2 percent. Investors bought shares of companies most tied to economic growth, sending technology and material shares higher by at least 0.6 percent. Facebook Inc. climbed 2.3 percent after Bank of Montreal raised its rating on the company to outperform from underperform.

The S&P 500 gained 0.3 percent to 1,406.47 at 10:09 a.m. in New York. The Dow Jones Industrial Average added 4.69 points, or less than 0.1 percent, to 12,942.80 today. Trading in S&P 500 companies was 24 percent below the 30-day average at this time of day.

“The fiscal cliff is the worse-case scenario, and if we have something better than that, then that’s a positive,” said Walter “Bucky” Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama. “I think we will get a deal. How do we sort that out and the tightening effect on the economy, that will be what the market responds to after the deal.”

Talks to reach a deal averting the so-called fiscal cliff are “progressing,” Senate Majority Leader Harry Reid said in an interview. The U.S. Senate will convene at 11 a.m. Washington time to discuss measures to avoid the automatic spending cuts and tax increases that take effect beginning in January.

Budget Impasse

Private discussions between Reid and Minority Leader Mitch McConnell that began Dec. 28 stalled yesterday because of disputes over income tax rates, the estate tax and other issues. McConnell, a Kentucky Republican, reached out to Vice President Joe Biden in an effort to break the impasse, while staffers worked into the night trading and reviewing offers.

The S&P 500 slipped 1.9 percent last week, the most since Nov. 9, amid concerns lawmakers weren’t making progress on a budget deal. The benchmark index has fallen 3.7 percent after reaching the highest level since 2007 in September as Obama’s re-election set up a budget showdown with the Republican- controlled House of Representatives. The gauge is still up 12 percent for 2012.

The fiscal cliff could lead to an economic slowdown in early 2013, according to the Congressional Budget Office.

In China, manufacturing expanded at a faster pace in December, according to the final reading of a Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics today. The 51.5 figure, the highest since May 2011, compares with the 50.9 preliminary reading published Dec. 14 and 50.5 in November. A reading above 50 indicates expansion.

German Economy

German Chancellor Angela Merkel said the economy will be more difficult in 2013 than this year.

“The reforms that we’ve agreed on are starting to take effect,” Merkel said in a New Year’s television speech to the nation, sent today in advance by e-mail. “Nevertheless, we still need a lot of patience. The crisis is far from over.”

Hewlett-Packard rose 1.3 percent to $13.86 for the biggest gain in the Dow. Caterpillar jumped 1.2 percent to $87.84. Technology companies rallied 0.8 percent, the most out of 10 groups in the S&P 500. Raw-material shares advanced 0.6 percent.

Facebook rallied 2.3 percent to $26.51. The owner of the biggest social network was raised to outperform from underperform by Bank of Montreal analyst Daniel Salmon.

Bristol-Myers Squibb Co. rose 2.5 percent to $32.70 after the blood thinner Eliquis was approved by U.S. regulators. Eliquis was cleared by the Food and Drug Administration for the prevention of blood clots that develop in patients with the heart rhythm disorder atrial fibrillation, the agency said in a statement on Dec. 28. The approval comes three months before the FDA’s most-recent March deadline for a ruling on the drug.

- Jeff Sutherland and Whitney Kisling in New York at Bloomberg.