Canadian dollar overlooks U.S. results in rangebound trade

TORONTO (Reuters) - Canada's dollar ended slightly lower against its U.S. counterpart on Wednesday, shrugging off a modest rally in other riskier assets after Alcoa opened the U.S. earnings season with an optimistic outlook.
Global equities staged a modest recovery after two days of losses. Even with the encouraging Alcoa report, investors lacked a clear view of how U.S. corporations fared in the fourth-quarter and the Canadian currency was rangebound.
Adam Cole, global head of FX strategy at RBC Capital Markets in London, expected more reaction to U.S. earnings once they picked up steam.
"If that's where stocks take their direction then it's difficult to get away from that, being a fairly major barometer of pressure on CAD," he said.
There was caution a day ahead of European and British central bank policy meetings, as well as a Spanish auction that will test appetite for peripheral euro zone debt, and Chinese trade data.
On the home front, the next major event of interest is a speech on Thursday by Tiff Macklem, a senior Bank of Canada official widely tipped to replace the departing Governor Mark Carney.
"Investors are looking toward Tiff Macklem's speech to see if there are any hints of his policy takes, if they're any different from Carney's, which is highly unlikely I think," said John Curran, senior vice president at CanadianForex.
"If anything, the Canadian dollar is remaining in positive territory recently speaking due to last week's (jobs) numbers and expectations that frontrunner Macklem is going to be towing the line so to speak with previous BoC sentiment."
The Bank of Canada stands apart from other major central banks in that it avoided large bouts of quantitative easing and now insists the next move in interest rates is likely to be up.
The Canadian dollar ended the North American session at C$0.9877 versus the greenback, or $1.0125, slightly weaker than Tuesday's close at C$0.9867, or $1.0135. It traded in a tight 26-point range between C$0.9855-C$0.9881.
U.S. profits were expected to beat the previous quarter's lackluster results, but analyst estimates were down sharply from October. Quarterly earnings were expected to grow by 2.7 percent, according to Thomson Reuters data.
RBC noted near-term U.S. dollar resistance versus the Canadian dollar around C$0.9947 and support near C$0.9826.
Analysts noted that the looming U.S. debt ceiling talks also kept investors on the sidelines.
Still, the Canadian dollar was outperforming some other major currencies such as the yen, as renewed expectations of easier Bank of Japan monetary policy led some investors to sell the Japanese currency.
Canadian bond prices were also little changed across the curve. The two-year bond was off nearly 1 Canadian cent to yield 1.168 percent, while the benchmark 10-year bond was down 2 Canadian cents to yield 1.910 percent.

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Wall Street rises after Alcoa reports earnings

NEW YORK (Reuters) - Stocks rose on Wednesday, rebounding from two days of losses, as investors turned their focus to the first prominent results of the earnings season.
Stocks had retreated at the start of the week from the S&P 500's highest point in five years, hit last Friday, on worries about possible earnings weakness.
Shares of Alcoa Inc were down 0.5 percent to $9.08 after early gains, following the company's earnings release after the bell on Tuesday. The largest U.S. aluminum producer said it expects global demand for aluminum to grow in 2013.
Herbalife Ltd stock rose 4.2 percent to $39.95 in its most active day of trading in the company's history after hedge fund manager Dan Loeb took a large stake in the nutritional supplements seller. Prominent short-seller Bill Ackman had previously accused the company of being a "pyramid scheme," which Herbalife has denied.
Traders have been cautious as the current quarter shaped up like the previous one, with companies recently lowering expectations, said James Dailey, portfolio manager of Team Asset Strategy Fund in Harrisburg, Pennsylvania. Lower expectations leave room for companies to surprise investors even if their results are not particularly strong.
"The big question and focus is on revenue, and Alcoa had better-than-expected revenue," which calmed the market a little, Dailey said.
Overall, corporate profits were expected to beat the previous quarter's meager 0.1 percent rise. Both earnings and revenues in the fourth quarter are expected to have grown by 1.9 percent, according to Thomson Reuters data.
The Dow Jones industrial average <.dji> gained 61.66 points, or 0.46 percent, to 13,390.51. The Standard & Poor's 500 Index <.spx> rose 3.87 points, or 0.27 percent, to 1,461.02. The Nasdaq Composite Index <.ixic> gained 14.00 points, or 0.45 percent, to 3,105.81.
Facebook Inc shares rose above $30 for the first time since July 2012, trading up 5.3 percent at $30.59. Facebook, which has been tight-lipped about its plans after its botched IPO in May, invited the media to its headquarters next week.
Clearwire Corp shares jumped 7.2 percent to $3.13 after Dish Network bid $2.28 billion for the company, beating out a previous Sprint offer and setting the stage for a takeover battle for the wireless service provider that owns crucial mobile spectrum.
Apollo Group Inc slid after heavier early losses, a day after it reported lower student sign-ups for the third straight quarter and cut its operating profit outlook for 2013. Apollo's shares were last off 7.8 percent at $19.32.
Volume was below the 2012 average of 6.42 billion shares traded per day, as 6.10 billion were traded on the New York Stock Exchange, NYSE MKT and Nasdaq.
Advancing stocks outnumbered declining ones on the NYSE by 2,014 to 963, while on the Nasdaq advancers beat decliners 1,603 to 859.

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Asia stocks rise on positive start to US earnings

BANGKOK (AP) — A positive start to U.S. corporate earnings season helped boost Asian stock markets Thursday.
Major regional benchmarks rose on the heels of a handful of better-than-expected results that also lifted Wall Street.
Consumer products maker Helen of Troy, whose brands include Dr. Scholl's and Vidal Sassoon, reported a 15 percent profit increase. Electronic payments processor Global Payments said its fiscal second-quarter earnings rose nearly 15 percent, beating Wall Street expectations.
After markets closed Tuesday, Alcoa Inc. predicted rising demand for its aluminum this year and topped revenue expectations for the fourth quarter. Earlier in the day, agricultural products giant Monsanto said its profit tripled and raised its guidance for 2013.
Japan's Nikkei 225 index rose 0.9 percent to 10,677.74. Hong Kong's Hang Seng gained 1 percent to 23,439.46. South Korea's Kospi added 0.7 percent to 2,005.39 and Australia's S&P/ASX 200 advanced 0.4 percent to 4,725.80.
The European Central Bank will meet later Thursday to set monetary policy for the 17 countries that use the euro. It is expected to keep its benchmark interest rate unchanged at the record low of 0.75 percent even though the eurozone economy as a whole is back in recession. Investors are also awaiting the release in the U.S. of weekly jobless claims.
On Wall Street, the Dow Jones industrial average rose 0.5 percent to close at 13,390.51 on Wednesday. The Standard & Poor's 500 rose 0.3 percent to 1,461.02. The Nasdaq composite index rose 0.5 percent to 3,105.81.
Benchmark crude oil contract for February delivery was up 33 cents to $93.44 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell 5 cents to close at $93.10 per barrel on the Nymex on Wednesday.
In currencies, the euro fell to $1.3047 from $1.3053 while the dollar rose to 88.05 yen from 87.75 yen.

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Asian shares slip, Basel ruling supports banks

 Asian stocks drifted down on Monday as investors booked profits from a New Year rally that had pushed markets to multi-month highs, although financial stocks gained after global regulators decided to relax draft plans for tough new bank liquidity rules.
Commodity prices mostly held steady, supported by data showing the U.S. economy continuing on a path of slow but steady recovery that propelled Wall Street stocks to a five-year high.
Financial bookmakers called Europe's main share indexes to open flat or slightly lower, while S&P 500 index futures traded in Asia eased 0.2 percent, pointing to a weaker start in New York.
"It just seems like markets are entering a consolidation phase after recent gains and with most markets trading at fresh 12-month highs," said Stan Shamu, market strategist at financial spreadbetting firm IG in Melbourne.
The dollar fell against the yen, coming off a two-and-a-half year peak it had logged against the Japanese currency as investors adjusted to the possibility of more monetary stimulus in 2013 from the Bank of Japan and less from the U.S. Federal Reserve.
MSCI's broadest index of Asia Pacific shares outside Japan, which had reached its highest level since August 2011 on Thursday, eased 0.1 percent, while Tokyo's Nikkei share average retreated after touching a 23-month high in early trade to close down 0.8 percent.
CASH BUFFERS
The MSCI benchmark's financial sector sub-index firmed after the Basel Committee of banking supervisors agreed on Sunday to give banks four more years and greater flexibility to build up cash buffers so they can use some of their reserves to help struggling economies.
HSBC Holdings Hong Kong shares rose 1 percent, while Australia and New Zealand Banking Group Ltd gained 0.6 percent.
Shares in Japanese exporters were supported by the trend of a weakening yen, which traded around 87.85 to the dollar, up 0.3 percent on the day, after the U.S. currency rose as far as 88.40 yen, its highest in nearly two-and-a-half years, on Friday.
The dollar posted a gain of around 2.7 percent against the yen last week, its biggest weekly rise in more than a year. Its gains had accelerated after minutes from the Federal Reserve's December meeting showed some policymakers had considered ending the Fed's bond-buying programme as early as this year.
By contrast, many investors are now betting that Japan's new government, led by Prime Minister Shinzo Abe, will push to weaken the yen and drive through aggressive fiscal stimulus, and pressure the Bank of Japan to do the same on the monetary side.
Although the dollar may pull back against the yen given the speed of its rise over the past month, its uptrend seems likely to remain intact, said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo.
"My sense is that the market could still head much higher," Maeba said. "I think 90 yen might be reached pretty soon."
The dollar firmed against the euro, which traded around $1.3035.
The U.S. stock benchmark S&P 500 index closed at its highest level since December 2007 on Friday after data showed a steady pace of jobs growth and brisk expansion of the services sector in the world's biggest economy.
That offered support to growth-sensitive commodities, with copper little changed just below $8,100 a tonne, while Brent crude oil eased a little to around $111.20.
Spot gold firmed 0.3 percent to around $1,660 an ounce.

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Burundi coffee earnings fall 63 pct in December

 Burundi's earnings from coffee exports fell 63 percent in December from the previous month due to lower volumes sold, the country's industry regulator said on Monday.
"Low quantities of coffee were exported in December as most buyers in western countries were off for the holidays," said regulator ARFIC in its monthly report.
Earnings dropped to $2.1 million from $5.7 million in November, as the amount of coffee sold tumbled to 896,547 kg from 1,671,638 kg in the previous month.
ARFIC expects the central African nation to earn a total of$61.4 million from coffee exports during the 2012/2013 (April-March) crop year, slightly up from $61.2 million earned in the 2011/2012 season.
Projected high output from the world's top producers like Brazil, Vietnam and Colombia could lower coffee prices in global markets, ARFIC said.
Coffee is the country's top hard currency earner and the sector employs some 800,000 smallholder farmers in a population of eight million.

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Maruti shares hit four-year high; earnings seen improving

MUMBAI (Reuters) - Maruti Suzuki shares rose to a four-year high on Monday on hopes earnings would improve due to rising sales for passenger vehicles, while margins were also seen increasing due to the depreciation in the Japanese yen.
CLSA's upgrade of Maruti Suzuki Ltd to 'buy' from 'sell' also helped boost the stock, traders said.
At 2:31 p.m., Maruti shares were up 3 percent to 1,591.5 rupees after earlier touching their highest since December 15, 2009.

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Wal-Mart defends low-price ads after rivals' objection

(Reuters) - Retail giant Wal-Mart Stores Inc has gone on the defensive against charges by competitors that a recent ad campaign is using inaccurate information, leading the competitors to file complaints with state legal officials.
A Wal-Mart Stores spokesman defended the retailer's ad campaign that claims to offer better prices on some products than competitors, after the Wall Street Journal reported rivals have complained to attorneys general in more than half a dozen states.
In documents reviewed by the Wall Street Journal, rivals have claimed that Wal-Mart's advertisements cross a line by making misleading comparisons or promoting products the company does not have in ample supply.
Wal-Mart ads have targeted retailers including Toys "R" Us Inc and Best Buy Co Inc , as well as several regional supermarket chains. Best Buy complained about a Wal-Mart ad to the Florida attorney general's office, while Toys "R" Us complained to Michigan officials, the Journal said.
"We know competitors don't like it when we tell customers to compare prices and see for themselves," Wal-Mart spokesperson Steven Restivo told the Wall Street Journal. "We are confident on the legal, ethical and methodological standards associated with our price comparison advertisements," he added.
Restivo confirmed to Reuters the accuracy of his comments published by the Journal.
Wal-Mart, which launched the radio and television ads last spring, said the initial ads spurred a 1.2 percent boost in sales at stores open at least a year and a 1.1 percent rise in store visits in areas where those ads were aired, compared with similar regions where they did not run.
Wal-Mart told the paper it responded to attorneys general in Michigan, Illinois, Pennsylvania, and Missouri over complaints from regional supermarket chains and Toys "R" Us. (http://link.reuters.com/dan94t)
The company said it has not received complaints from Best Buy. The attorneys general offices in Florida and New Jersey said they were reviewing similar complaints, according to the paper.
Toys "R" Us and Best Buy officials could not immediately be reached for comment by Reuters after regular U.S. business hours.

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Asian shares drop on Fed minutes, dollar extends gains

TOKYO (Reuters) - Asian shares fell on Friday, as investors booked profits from a recent sharp climb after senior Federal Reserve officials expressed concerns about continuing to expand stimulative bond buying, but the dollar extended gains as U.S. debt yields rose.
European shares were seen tracking Asian peers lower, with financial spreadbetters predicting London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX would open down as much as 0.3 percent. A 0.1 percent drop in U.S. stock futures suggested a soft Wall Street start.
Minutes from the Fed's December policy meeting released on Thursday showed concerns among some members of the Federal Open Markets Committee about the potential risks of the Fed's asset purchases on financial markets, even if it looked set to continue an open-ended stimulus program for now.
The Fed's asset-buying policy has been pivotal in underpinning investor risk appetite, so the more hawkish Fed minutes unnerved financial markets.
Benchmark U.S. Treasury yields continued their climb, hitting an eight-month high around 1.93 percent in Asia on Friday, while key 10-year Japanese government bond yields touched a 3-1/2-month high of 0.83 percent.
The dollar also rose on data showing U.S. private-sector hiring improved in December, raising hopes for a strong monthly payrolls report due later in the day, a key gauge to the U.S. economy and the Fed's future policy course.
The dollar's rise makes dollar-based assets more expensive for non-dollar investors, hitting precious metals and oil.
The Fed's minutes spurred consolidation from broad-based buying which took place after U.S. lawmakers earlier this week narrowly avoided falling off the "fiscal cliff" of automatic taxes rises and spending cuts, which risked derailing the economy.
"Market moves largely reflect positioning after the recent rallies and before the nonfarm payrolls, which could tip the markets either way," said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo, adding that markets may be dictated by interest rates this year, rather than risk-on, risk-off sentiment as was last year.
MSCI's broadest index of Asia-Pacific shares outside Japan slid 0.7 percent, after scaling its highest since August 2011 on Thursday. But the pan-Asian index was set to end the first week of 2013 up 1.8 percent, thanks to the New Year's rally.
"After the big relief rally we had on the fiscal cliff decision and compromise, I would expect the market to consolidate a little bit," Martin Lakos division director at Macquarie Private Wealth, said of Australian shares which slipped 0.4 percent, retreating from Thursday's 19-month highs. Hong Kong shares eased from a 19-month highs, falling 0.6 percent, but Shanghai rose 0.5 percent.
The dollar hit its highest since July 2010 against the yen at 87.835 while the euro fell to a three-week low of $1.3019. The U.S. dollar also touched a six-week high against a basket of major currencies on Friday.
"Dollar-positive momentum is solid as the fiscal cliff was averted, the overnight data was good and yields were rising. I won't be surprised to see the dollar rise to 90 yen soon," said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo.
"Despite repeated Japanese intervention, the dollar had refused to strengthen in the past, but now, it's advancing without any action, suggesting the direction has completely changed to support continued dollar buying," Maeba said.
The yen's tumble pushed Japan's benchmark Nikkei stock average briefly up more than 3 percent to its highest since March 2011, outshining the Asian regional bourses. The Nikkei closed up 2.8 percent.
FISCAL CLIFF VS DATA
U.S. President Barack Obama and congressional Republicans face tough talks on spending cuts and an increase in the nation's debt limit as the hard-fought fiscal deal delayed decisions on expenditures until March 1.
Investor sentiment was supported by recent solid data from the world's two largest economies, the United States and China.
China's services sector saw its slowest rate of expansion in nearly a year and a half in December, a private sector survey showed on Friday, but underlying growth revival remained intact, even if it were modest.
"We are coming off overbought levels today. This cyclical-led rally in offshore Chinese shares should continue in the next few weeks, China's improving economic data will help," said Wang Ao-chao, UOB-Kay Hian's Shanghai-based head of China research.
The U.S. economy likely added 150,000 jobs in December, according to a Reuters survey, up from 146,000 in November. The unemployment rate is expected to hold steady at 7.7 percent.
Resolution of the U.S. fiscal cliff crisis could weigh on some Asian assets as investors could start to shift some money out of overpriced Asian investments in favour of the U.S. on brightening prospects for American stocks.
U.S. crude fell 0.7 percent to $92.26 a barrel while Brent shed 0.6 percent to $111.47.
Spot gold fell 1 percent to around $1,645, dragging silver down more than 2 percent to $29.48.
Despite the decline in equities markets, sentiment in Asian credit markets remained upbeat, with the spread on the iTraxx Asia ex-Japan investment-grade index narrowing by two basis points.

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Fed becoming worried about stimulus side effects

WASHINGTON (Reuters) - Federal Reserve officials are increasingly concerned about the potential risks of the U.S. central bank's asset purchases on financial markets, even if they look set to continue an open-ended stimulus program for now.
In a surprise to Wall Street, minutes from the Fed's December policy meeting, published on Thursday, showed a growing reticence about further increases in the central bank's $2.9 trillion balance sheet, which it expanded sharply in response to the financial crisis and recession of 2007-2009.
"Several (officials) thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet," the minutes said, referring to the narrower group of voting Fed members.
Investors picked up on the report's hawkish tone, with stock prices drifting lower after the announcement, while the U.S. dollar extended gains against the euro. Yields on the 30-year Treasury bond hit 3.12 percent, their highest levels since May.
"The minutes of the Federal Reserve's December monetary policy meeting revealed a somewhat surprising level of concern among the ranks of central bankers regarding the long-term impact of the bank's asset purchase program, or quantitative easing," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington D.C.
Still, the Fed appeared likely to continue buying assets for the foreseeable future, having announced in December it was extending monthly purchases of $40 billion in mortgage securities and also buying $45 billion in Treasuries each month.
A few of the voting members on the central bank's policy-setting Federal Open Market Committee thought asset buying would be warranted until about the end of 2013. A few others highlighted the need for further large-scale stimulus but did not specify an amount or time frame.
Fed officials generally agreed that the labour market outlook was not likely to improve without further nudging from the monetary authorities.
QE "HEEBIE-JEEBIES"
The U.S. economy expanded a respectable 3.1 percent in the third quarter on an annualized basis, but growth is believed to have slowed sharply to barely above 1.0 percent in the last three months of the year.
Data on Thursday showed a solid gain of 215,000 new private sector jobs for December, while analysts polled by Reuters last week were looking for a rise of 150,000 new jobs in the Labor Department's official survey, due out on Friday.
Still, the minutes indicated worries about quantitative easing policies were spreading beyond the usual regional Fed hawks who, like Richmond Fed President Jeffrey Lacker, have opposed additional Fed easing.
"What's clear from these minutes is that there is little consensus among the members of the FOMC on how long asset purchases should carry on," said Jason Conibear, trading director at Cambridge Mercantile.
"Some members want more accommodation for as long as it takes, some want more but to start winding it down while others have got the heebie-jeebies about the size of the balance sheet."
In the December meeting, the Fed also launched a new framework of policy thresholds, numerical guideposts that are supposed to give markets and the public a clearer idea of how policymakers will react to incoming economic data.
Officials say they will keep interest rates near zero until the unemployment rate falls to 6.5 percent for as long as estimates of medium-run inflation do not exceed 2.5 percent.
The minutes suggested it took officials some time to build a consensus around the idea.
"A few participants expressed a preference for using a qualitative description of the economic indicators influencing the Committee's thinking," the minutes said.
U.S. unemployment has come down steadily after hitting a peak of 10 percent in late 2009, but remains elevated at 7.7 percent.
Fed officials noted worries about the looming "fiscal cliff," which was dealt with only partly in an agreement earlier this week, were hurting the confidence of businesses and households.

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Shares steady after rally, dollar jumps

 World stocks stalled on Thursday as traders were cautious after equities hit an 18-month high, while the U.S. dollar climbed to a three-week high against a basket of currencies on concerns about more budget wrangling in Washington.
Data suggesting some momentum in the U.S. economy as the year ended showed private-sector employers stepped up hiring in December, allowing for the upward tick in stocks and further supporting the greenback.
President Barack Obama and congressional Republicans face two more months of tough talks on spending cuts and an increase in the nation's debt limit as the hard-fought deal to avert the "fiscal cliff" of automatic tax hikes and spending cuts covered only taxes and delayed decisions on expenditures until March 1.
"There's still some clouds over the horizon, with the fiscal issue of the government," said Jeff Meyerson, head of trading at Sunrise Securities in New York. "We don't know how they're going to pan out, but in all likelihood there's not going to be a calamity."
The MSCI world equity index <.miwd00000pus> advanced less than 0.1 percent, reversing a dip through most of the session after hitting an 18-month high on Wednesday.
A European equity benchmark <.fteu3> ended up 0.45 percent after hitting its highest intraday level since March 2011, boosted by a belated reaction in Swiss stocks due to a holiday.
The Dow Jones industrial average <.dji> was up 7.03 points, or 0.05 percent, at 13,419.58. The Standard & Poor's 500 Index <.spx> was up 1.57 points, or 0.11 percent, at 1,463.99. The Nasdaq Composite Index <.ixic> was up 2.49 points, or 0.08 percent, at 3,114.75.
The euro tumbled against the dollar as investors grew worried about more budget fights ahead. Analysts say the market could be set up for volatility as Obama and congressional Republicans tussle over the next two months.
The dollar was up 0.4 percent against a basket of major currencies <.dxy> at a three-week high of 80.13, although it slipped 0.4 percent against the yen to 86.97.
"We really just kicked the can down the line and we're set up for another fight on the hill in the next month and a half or so," said John Doyle, currency strategist at Tempus Consulting in Washington.
The euro, which had touched an 8-1/2 month high against the dollar on Wednesday, was down 0.6 percent at $1.3110.
Investors will now turn their attention to Friday's December U.S. employment report. It is expected to show modest job growth of around 150,000, compared with 146,000 in November.
The ADP National Employment Report showed Thursday the U.S. private sector added 215,000 jobs in December, comfortably above economists' expectation of a 133,000 gain. Following the recent rally in equities, any disappointment in Friday's payrolls number could trigger a profit-taking sell-off.
DOLLAR JUMP HITS COMMODITIES
The dollar's strength and rising oil supplies pushed crude prices lower, with Brent down 0.1 percent to $112.31 a barrel. U.S. crude futures were down 0.1 percent at $93.15.
Analysts expect oil prices to drop in 2013 as supply outweighs demand, especially after U.S. crude production hit a 19-year high in 2012.
Gold futures followed commodities lower and were down about 0.6 percent at $1,676.41 an ounce.
Thursday's retreat across riskier asset markets might have been sharper but for data showing activity in China's services sector and at U.S. factories expanded in December, brightening the outlook for global growth.
China's official purchasing managers' index for the non-manufacturing sector rose to a four-month high in December, adding to signs of a revival in the world's second-largest economy.
U.S. Treasury debt prices eased, pushing yields to three-month highs after the U.S. private jobs data cut into the appeal of safe U.S. government issues. Treasuries had already sold off sharply on Wednesday following the U.S. government deal to avoid the so-called "fiscal cliff."
The benchmark 10-year U.S. Treasury note was down 7/32, the yield at 1.8618 percent, a 15-week high.

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Stocks edge lower as next fiscal showdown looms

Stock indexes turned lower Thursday afternoon after the Federal Reserve said its policymakers are split over how long to continue a bond-purchasing program intended to stimulate the economy.
The Dow Jones industrial average and the Standard & Poor's 500 index treaded water for much of the day, then dipped into the red after 2 p.m. Eastern, when the Fed released minutes from its December policy meeting.
As of 2:33 p.m. the Dow was off 27 points at 13,396. The Dow is coming off its biggest gain in more than a year and is still up 450 points this week.
The S&P 500 was down three points at 1,459 and the Nasdaq composite fell eight to 3,104.
At last month's meeting of the Federal Reserve's policymaking committee, the central bank said it would buy $85 billion of Treasury securities and mortgage-backed bonds on an open-ended basis, and also keep a benchmark interest rate near zero until the unemployment rates drops below 6.5 percent. The unemployment rate was 7.7 percent in November. The government reports the rate for December on Friday.
On Thursday, the Fed revealed a split among its members over how long to continue the bond purchases. Some of its 12 voting members thought they would continue through this year, while others thought they should be slowed or stopped before the end of 2013. Those governors were concerned that the continued bond purchases would destabilize the economy.
Prices of U.S. government bonds fell, sending their yields higher, after the minutes of the Fed's meeting were released. The yield on the benchmark 10-year Treasury note rose to 1.90 percent from 1.84 percent late Wednesday. That means investors are anticipating the Fed will slow its purchases of bonds.
The stock market opened on a weak note after retailers reported mixed holiday sales and as the prospect of a new budget battle in Congress loomed. UnitedHealth Group led the Dow lower. The stock fell $1.65 to $52.88 after analysts at Deutsche Bank and other firms cut their ratings on the stock.
"It's natural to relax a bit after such a huge day as yesterday," said Lawrence Creatura, who manages a small-company fund at Federated Investors.
The Dow soared 308 points Wednesday, its largest point gain since December 2011. The rally was ignited after lawmakers passed a bill to avoid a combination of government spending cuts and tax increases called the "fiscal cliff."
That deal gave the market a jump start into the new year. The Dow and the S&P 500 are already up more than 2 percent.
"We're off to a very strong start," Creatura said. "The dominant reason is the resolution of the fiscal cliff. But January is usually a strong month, as investors all shift money into the market at the same time. When the calendar flips, it's as if you're allowed to begin the race anew."
Economists had warned that the full force of the fiscal cliff could drag the country into a recession. The law passed late Tuesday night averted that outcome for now, but other fiscal squabbles are likely in the months ahead. Congress must raise the government's borrowing limit soon or be forced to choose between slashing spending or paying its debts.
Ross Stores surged 6 percent in early trading. The retailer said sales at stores open at least a year increased 11 percent during the holiday shopping season. Ross Stores rose $3.65 to $58.09.
Nordstom Inc. surged 2 percent after the department-store chain also reported strong holiday sales, especially in the South and Midwest. Nordstrom's stock was up $1.21 to $54.84.
Other retailers struggled during the holidays as shoppers held out for deep discounts.
Family Dollar Stores sank 12 percent after reporting earnings that fell short of analysts' projections. The company also forecast a weaker outlook for the current period and full year. Family Dollar's stock lost $7.25 to $56.75.
Among other stocks making big moves:
— Transocean jumped $3.33, or 7 percent, to $49.57. The owner of the oil rig that sank in the Gulf of Mexico in 2010 after an explosion killed 11 workers reached a $1.4 billion settlement with the Justice Department.

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Fed split on stimulus plans nudges stocks lower

NEW YORK (AP) — Stocks are fading into the close of trading on Wall Street after the Federal Reserve revealed a split among its policymakers over how long to continue an economic stimulus program.
The market started on a weak note Thursday following mixed holiday sales reports from retailers and the prospect of another fiscal fight looming in Congress over the nation's borrowing limit.
The Dow Jones industrial average finished down 21 points at 13,391. The Dow surged 308 points the day before, its biggest gain in more than a year.
The Standard & Poor's 500 index lost three points to end at 1,459. The Nasdaq composite lost 11 to end at 3,100.
Rising stocks outnumbered falling ones on the New York Stock Exchange. Volume was 3.8 billion shares, above the recent average.

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Private sector job gains offer hope for labor market

WASHINGTON (Reuters) - Private-sector employers shrugged off a looming budget crisis and stepped up hiring in December, offering further evidence of underlying strength in the economy as 2012 ended.
While other data on Thursday showed an increase in the number of Americans filing new claims for unemployment benefits, the trend remained consistent with steady job growth.
"The underlying economy has momentum, and the employment data confirms that. The hope and prayer of the market is that our political leaders don't screw it up," said John Brady, managing director at R.J. O'Brien & Associates in Chicago.
Although Congress this week approved a deal to avoid the so-called fiscal cliff, a combination of sharp government spending cuts and higher taxes that would have sucked about $600 billion from the economy, the budget problems are far from resolved.
The ADP National Employment Report showed the private sector added 215,000 jobs last month after increasing payrolls by 148,000 in November. The report is jointly developed with Moody's Analytics.
The job gains came even as companies worried the economy might fall off the fiscal cliff.
However, the ADP data tends to overstate job gains in December because of a year-end accounting quirk.
"While we are encouraged by the better tone in the ADP employment report, we are cautious about reading too much into it, particularly given its tendency to exaggerate the performance of the labor market in December," said Millan Mulraine, a senior economist at TD Securities in New York.
Still, the report added to other data ranging from consumer spending to manufacturing that have suggested the economy was in a much better shape than previously thought.
It was released ahead of the government's more comprehensive employment report on Friday, which is expected to show employers added 150,000 jobs to their payrolls in December, according to a Reuters survey of economists, up from 146,000 in November.
STEADY JOB GAINS
A separate report from the Labor Department showed initial claims for state unemployment benefits increased 10,000 to a seasonally adjusted 372,000 last week. However, claims data for nine states, including California and Virginia, was estimated because of the Christmas and New Year holidays.
The four-week moving average for new claims, a better measure of job market trends, was little changed at 360,000, a sign labor conditions continue to improve at a steady pace.
"The claims data are not always reliable labor market indicators around the holiday season because of issues seasonally adjusting the data, but it is still a somewhat encouraging sign to see the trend in the data remain relatively low," said Daniel Silver, an economist at JPMorgan in New York.
Job gains in the first 11 months of last year averaged about 151,000 per month, not enough to significantly lower unemployment. The jobless rate dropped by 0.2 percentage point to 7.7 percent in November and is expected to have held at that level last month.
Labor market concerns prompted the Federal Reserve to aggressively ease monetary policy, but consensus is diminishing.
Minutes of the U.S. central bank's December 11-12 meeting released on Thursday showed some policymakers thought it would be prudent to slow or stop asset purchases well before the end of this year because of concerns about financial stability.
Stocks on Wall Street ended lower on the prospect of the Fed adopting a less accommodative stance. Prices for U.S. government debt fell, with the yield on the longer-dated 30-year bond touching its highest level since May.
The U.S. dollar rose against a basket of currencies.
The improving labor market tone was also captured by a third report showing planned layoffs at U.S. firms fell in December for the first time in four months, while the overall job-cut total in 2012 was the lowest since 1997.
"The key to job creation is the pace at which companies are willing to hire new workers since it appears they are already retaining existing employees at a high rate," said John Ryding, chief economist at RDQ Economics in New York.
Better job security is helping to support domestic demand. Auto sales rose 9.0 percent last month to a 1.36 million-unit annual rate last month.
Several major retailers reported better-than-expected sales in December. Sales at stores open at least a year rose 4.5 percent, beating analysts' estimates for 3.3 percent growth.

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Stocks fade after Fed discloses split on stimulus

A two-day rally in the stock market came to an end Thursday afternoon when an account of the Federal Reserve's last meeting revealed a split between bank officials over how long the Fed should keep buying bonds to support the economy.
The Dow Jones industrial average and the Standard & Poor's 500 index treaded water for much of the day, then slid into the red around 2 p.m. Eastern, after the Fed released the minutes from its December meeting.
The Dow ended with a loss of 21.19 points at 13,391.36.
The S&P 500 lost 3.05 points to 1,459.37 and the Nasdaq composite fell 11.70 to 3,100.57.
At last month's meeting of the Federal Reserve's policy-making committee, the central bank pledged to buy $85 billion of Treasurys and mortgage-backed bonds and also keep a benchmark interest rate near zero until the unemployment rates drops below 6.5 percent.
On Thursday, the minutes from that meeting showed Fed officials were divided over the bond purchases. Some of its 12 voting members thought they should continue through this year, while another group thought they should be slowed or stopped much earlier. Just "a few" members saw no need for a time frame, according to the minutes.
"It's pretty surprising," said Thomas Simons, market economist at the investment bank Jefferies. "I think everybody thought there was broad agreement on policy, but now it seems like few of them really wanted to vote for it."
The stock market opened on a weak note after retailers reported mixed holiday sales and as the prospect of a new budget battle in Congress loomed. UnitedHealth Group led the Dow lower. The insurance giant's stock fell $2.55 to $51.99 after analysts at Deutsche Bank and other firms cut their ratings on the stock.
"It's natural to relax a bit after such a huge day as yesterday," said Lawrence Creatura, who manages a small-company fund at Federated Investors.
The Dow soared 308 points Wednesday, its largest point gain since December 2011. The rally was ignited after lawmakers passed a bill to avoid a combination of government spending cuts and tax increases called the "fiscal cliff."
That deal gave the market a jump start into the new year. The Dow and the S&P 500 are already up more than 2 percent.
"We're off to a very strong start," Creatura said. "The dominant reason is the resolution of the fiscal cliff. But January is usually a strong month, as investors all shift money into the market at the same time. When the calendar flips, it's as if you're allowed to begin the race anew."
Economists had warned that the full force of the fiscal cliff could drag the country into a recession. The law passed late Tuesday night averted that outcome for now, but other fiscal squabbles are likely in the months ahead. Congress must raise the government's borrowing limit soon or be forced to choose between slashing spending and paying its debts.
In other Thursday trading, prices of U.S. government bonds fell, sending their yields higher. The yield on the benchmark 10-year Treasury note rose to 1.90 percent from 1.84 percent late Wednesday, a sign that some bond traders believe the Fed minutes hinted at an early end to its bond buying.
Family Dollar Stores sank 13 percent after reporting earnings that fell short of analysts' projections. The company also forecast a weaker outlook for the current period and full year. Family Dollar's stock lost $8.30 to $55.74.
Nordstom Inc. surged 3 percent after the department-store chain reported strong holiday sales, especially in the South and Midwest. Nordstrom's stock was up $1.64 to $55.27.
Among other stocks making big moves:
— Transocean jumped $2.96 to $49.20. The owner of the oil rig that sank in the Gulf of Mexico in 2010 after an explosion killed 11 workers reached a $1.4 billion settlement with the Justice Department.
— Hormel Foods, known for making Spam and other meat products, said that it's buying Skippy, the country's No. 2 peanut butter brand, from Unilever for about $700 million. Hormel's stock jumped $1.19 to $33.20.

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Egypt's leader sees currency stabilizing "within days"

 Egypt's pound fell to a record low on Monday as the president signaled his government would allow it to depreciate slowly for several more days to stop a drain on foreign reserves that has driven the economy into crisis since the fall of Hosni Mubarak.
Hit by a new bout of political turmoil in the last month, the pound had weakened to a record low on Sunday at a new dollar auction brought in by the central bank. It fell further at a second auction on Monday, last trading at 6.37 to the dollar on the interbank market.
The drop means the central bank has allowed the pound to slide almost 3 percent over the last two days after limiting its decline to only 6 percent since the uprising that removed Mubarak from power almost two years ago.
The pound's fall, which is certain to increase the price of imported staples such as tea and sugar, underlines the economic crisis facing President Mohamed Mursi as his administration tries to contain the political fall-out of his move to fast-track a contentious new constitution passed into law last week.
Egyptians, panicked by street clashes between Mursi's Islamist backers and his more secular-minded opponents on the streets of Cairo and other cities, have rushed to change their pounds into dollars in recent weeks, fearing it would be devalued further.
"The market will return to stability," Mursi told Arab journalists on Sunday evening, the state news agency MENA reported.
The pound's fall "does not worry or scare us, and within days matters will balance out," he said.
Having just sold their last dollar bills, dealers at one Cairo foreign exchange bureau did not bother changing the price board when the new low appeared on their trading screens.
"He took our last dollars," one of the traders said, pointing to a man walking out of the door.
Outside, another man told a friend his dollar hunt had failed. "They have no dollars. What can I do?" he said on a mobile phone. "I went to many dealers and could not find dollars."
The fall has been driven mainly by ordinary citizens who have been trying to turn their savings into foreign currency, worried that the pound will weaken further because of the latest political turmoil.
The crisis wiped 10 percent off the value of Egyptian stocks when it erupted in late November. But the main index has mostly recovered since then, climbing in the two sessions since the introduction of the new foreign currency system.
Market participants attribute the rise to buying by Arab and international investors using the cheaper pound to bargain hunt.
FREE FLOATING POUND
The auctions are part of a shift announced on Saturday and designed to conserve foreign reserves, which the bank says are now at "critical" levels that cover just three months of the food, fuel and other goods Egypt imports.
Bankers have described the new system as a move toward establishing a free market value for the pound, which has been tightly controlled since a managed devaluation that ended in 2004.
The head of the Egyptian banking federation said the new system was an "important first step" toward a free float.
In remarks to MENA, Tarek Amer, who is also chairman of Egypt's largest bank, state-owned National Bank of Egypt, said the new system was a success on its first day and had "significantly reduced" demand for dollars.
The International Monetary Fund also gave the new currency policy its stamp of approval, an important imprimatur given that Egypt hopes to secure a $4.8 billion IMF loan. "IMF staff is in close contact with the authorities and we remain strongly committed to supporting Egypt," an IMF spokeswoman said.
The central bank has sold about $75 million at each of Sunday's and Monday's auctions.
The run on the pound prompted officials last week to impose controls on how much cash could be physically carried out of the country. Security men at one Cairo bank branch had to remove one customer angered by a $10,000 limit on how much currency he could withdraw, witnesses said.
The changes announced on Saturday include regular foreign currency auctions and limit how much foreign currency companies can withdraw at a time.
The central bank had spent more than $20 billion - or more than half of its reserves - over the past two years to defend the currency. The reserves fell an additional $448 million in November to about $15 billion.
Prices of imports have already started to rise. Pyramid Oil Field, a company that imports chemicals for use in water treatment and oil fields, had raised its prices 10 to 15 percent last week, fearing a further weakening of the pound.
"This instability obliges you to increase the price, to have a safety factor," Ashraf el-Gamal, president and managing director of the company, told Reuters. "From now on, the contracts will be of a very short validity."
To be on the safe side, he was projecting that the pound would weaken to stand at 9 against the euro, compared with a previous level of 8.
ECONOMY FRAGILE
Prime Minister Hisham Kandil said on Sunday that the economy was in "a very difficult and fragile" situation, adding that he expected loan talks with the IMF to resume in January.
Egypt won preliminary approval in November from the IMF for the loan, but delayed seeking final approval until January after it suspended a series of tax increases to allow more time to explain a heavily criticized package of economic austerity measures to the public.
Kandil's efforts to revive the economy have been hit by the latest turmoil, which scared off tourists who had begun to return. On the eve of the anti-Mubarak revolt, Egypt's tourism industry accounted for one in eight jobs.
Mursi hoped that the passage of a new constitution would stabilize Egypt's politics, giving him space to implement economic reforms and attract investment. The constitution, written by Mursi's Islamist allies, was approved in a popular referendum in December.
But it remains the focus of controversy, and the opposition is likely to seize upon austerity measures demanded under an IMF deal as a stick to beat the Muslim Brotherhood ahead of a parliamentary vote expected in early 2013.
Two-fifths of Egypt's 84 million population live near the poverty line and depend on subsidies that are straining the treasury.
Gamal of Pyramid Oil Field said he knew of at least three foreign companies that were hesitant to make large investments in the country because of the instability.
"They are feeling insecure because of everything that is happening," he said. "One is looking to invest billions.

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TSX rises with hope for "fiscal cliff" deal

 Canada's main stock index rose more than 1 percent on Monday, boosted by the materials sector, as U.S. lawmakers pushed for a last-minute agreement to avoid the "fiscal cliff" that could put the U.S. economy into recession.
Gold rallied in the afternoon after news of a potential deal, and held its gains as President Barack Obama said a deal to prevent the tax hikes and sharp spending cuts was in sight, but not yet complete.
"As always, they leave it to the very last moment, and then something almost invariably emerges, even if it's not the major, game-changing plan that they wanted," said Gavin Graham, president at Graham Investment Strategy.
Graham said investors were likely buying gold because of inflation that could follow a resolution of the U.S. budget dispute. Gold is seen as a hedge against inflation.
He said upbeat manufacturing data out of China was also helping the Canadian market: "It's evident now that China is emerging from its slowdown."
That data boosted iron ore and copper prices, and Teck Resources Ltd , Canada's largest diversified miner, was an influential gainer on the TSX, rising 3.5 percent to C$36.29.
At 3:00 p.m. the Toronto Stock Exchange's S&P/TSX composite index <.gsptse> was up 138.77 points, or 1.1 percent, at 12,454.89. The index was on track to finish up about 4 percent for the year.
"If you're a Canadian and you bought the index, you got killed by the commodities this year," said David Baskin, president of Baskin Financial Services. "You got whacked by the gold stocks."
Gold miners underperformed in 2012 as soaring operating and development costs cut into profits despite historically high gold prices.
Goldcorp Inc was one of the most influential gainers in the index on Monday, however, rising 3.5 percent to C$36.68.
The heavyweight materials sector rose 2.8 percent overall.
Financial stocks, which have been rising and falling with the perceived chances of a U.S. budget deal in recent weeks, were up 0.4 percent in volatile trading.
Energy stocks rose 1.3 percent as oil prices edged higher on optimism about the U.S. budget talks. Suncor Energy Inc led the index higher, rising 1.8 percent to C$32.79.
Canpotex Ltd, the offshore sales agency for Potash Corp of Saskatchewan , Mosaic Co and Agrium Inc , said it struck a six-month agreement to supply a subsidiary of China's Sinofert Holdings Ltd . Potash Corp rose 2.0 percent to C$40.52, and Agrium was up 2.0 percent at C$99.78.
The Canadian Imperial Bank of Commerce said it would pay $149.5 million to the estate of Lehman Brothers Holdings Inc to resolve litigation over a collateralized debt obligation tied to the bankruptcy of the former Wall Street bank. Shares fell 0.7 percent to C$80.02, and CIBC was the most influential negative stock in the index.

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Equities rally as U.S. "cliff" deal nears; oil up

Wall Street rallied on Monday and global equities finished their best year in the last three as U.S. lawmakers closed in on a deal to avoid a budget crisis that many fear could cripple the world economy in 2013.
U.S. President Barack Obama said Congress was close to an agreement that would start chipping away at the deficit without raising middle-class taxes.
Senate Republican leader Mitch McConnell also said an agreement was "very, very close," though it wasn't clear whether a vote would happen on Monday or be pushed into early 2013.
U.S. stocks rose, capping off a strong year on a high note and leaving the MSCI all-world index on track to end the year up more than 13 percent.
The S&P 500 closed out 2012 with a gain of 13.4 percent in 2012 after a nearly flat performance the prior year. The Dow was up 7.3 percent and the Nasdaq nearly 16 percent.
Oil prices edged higher on Monday on optimism over a budget deal, while U.S. government debt prices fell.
The budget deal is not likely to provide a long-term road map to reduce the U.S. budget deficit, which has been above $1 trillion for four straight years.
"Traders understand that this is a stop-gap measure, but they'll take it," said Quincy Krosby, market strategist at Prudential Financial in Newark. "Markets can rally with some growth, but not with no growth. For now, they don't mind kicking the can down the road."
Without a deal $600 billion of automatic spending cuts and across-the-board tax increases would begin to take effect January 1, a blast of austerity that economists fear would thrust the United States into recession and hurt world growth.
The Dow Jones industrial average was up 150.93 points, or 1.17 percent, at 13,089.04. The Standard & Poor's 500 Index was up 21.80 points, or 1.55 percent, at 1,424.23. The Nasdaq Composite Index was up 59.94 points, or 2.02 percent, at 3,020.25.
European shares also gained after a quiet day in Asia, where Japan's Nikkei and other indexes were already closed for 2012.
With the world's major central banks expected to keep pumping stimulus into their economies at any sign of weakness, most economists forecast further gains in equities next year.
Benchmark 10-year U.S. Treasuries fell 16/32 on the pending fiscal cliff deal to yield 1.76 percent. Treasury yields finished the year only slightly above where they started it, thanks to heavy safe-haven buying and the Fed's asset purchase programs aimed at keeping long-term rates low.
STILL RISKS AHEAD
Risks remain for 2013, investors said.
Europe could lurch back into trouble if slow growth puts further pressure on heavily indebted countries such as Spain and Italy, said Alan Wilde, who helps manage $50 billion at Baring Asset Management in London.
"This pressure point may make acceptance of austere policy measures unpalatable and politicians may find they have to find other ways to cut costs," he said.
In the United States, striking the right balance between growth and deficit reduction will also be a challenge, as will addressing long-term fiscal problems.
"It looks to be another lengthy time of instability and volatility on Wall Street as the real work to address the longer term fiscal health of the U.S. government moves into 2013," said Ron Florance, managing director of investment strategy at Wells Fargo Private Bank.
But in 2012, investors' worst fears -- a euro zone collapse, a hard landing in China's once-booming economy and another U.S. recession -- never came to pass.
The pan-European FTSEurofirst 300 gained roughly 13 percent this year, largely due to the European Central Bank's vow to tackle the region's debt crisis, and recovered from an early morning dip on Monday to end the year at 1,131.64.
Peripheral euro zone bonds also rallied after a roller coaster year. Yields on Spanish and Italian sovereign bonds, a measure of the compensation creditors demand for lending money to those governments, spiked in the summer but have since fallen sharply. Euro zone bond markets were closed on Monday.
The euro was down 0.2 percent at $1.3191, but was up 2 percent for the year. An agreement on the U.S. budget would also be viewed as positive for the euro because it would help boost global growth.
Against the yen, the dollar hit 86.64, its best showing since mid-2010, and was set to end the year 12 percent firmer against Japan's currency, its biggest gain since 2005.
With a new Japanese government led by Prime Minister Shinzo Abe expected to pursue a policy mix of aggressive monetary easing and heavy fiscal spending to beat deflation, analysts see the yen staying under pressure in 2013.
Commodities also found recent support as economic data in key emerging economies such as China have started pointing to a gradual pick-up in the pace of growth in 2013.
Gold was $1,675.60 an ounce, up more than 6 percent for the year and on track for a 12th consecutive year of gains. Rock-bottom interest rates, concerns over the financial stability of the euro zone, and diversification into bullion by central banks have boosted the metal. Copper also rose, ended the year up 6 percent after a late rally on Monday.
U.S. crude rose $1.02 to $91.82 per barrel but ended 2012 down more than 7 percent, snapping a string of three straight yearly gains. Brent crude closed 2012 up for a fourth straight year after geopolitical threats offset worries about falling demand. Brent crude averaged more than $111 a barrel in 2012, the highest on record.

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A surprisingly good vintage as market logs gains

If you'd told investors what was going to happen in 2012 — U.S. economic growth at stall speed, an intensifying European debt crisis, a slowdown in China, fiscal deadlock in Washington, decelerating corporate earnings growth — and asked how the stock market would perform, few would have predicted a good year.
But that's just what they got.
The Dow Jones industrial average, the Standard & Poor's 500 and the Nasdaq composite index all ended the year substantially higher, despite losing ground in the final days of year as concerns about the looming "fiscal cliff" mounted.
The Dow gained 7 percent for the year, its fourth consecutive annual advance, having started the year at 12,217. The S&P 500, which started the year at 1,257, is up 13 percent, beating the 7.8 percent average annual gain of the past 20 years. The Nasdaq also logged a better-than-average gain, 16 percent.
Including dividends, the total return on the S&P 500 index was even better: 16 percent.
Financial companies led the gains among S&P 500 stocks, advancing 26 percent, as banks continued their restructuring efforts after the recession. Bank of America more than doubled, gaining $6.05 to $11.61 and Citigroup advanced $13.25, or 50 percent, to $39.56. Utilities, the best-performing industry group last year, was the only sector of 10 industry groups in the index to decline, dropping 2.9 percent.
"There's been a lot thrown at this market, and it's proven to be very resilient," said Gary Flam, a portfolio manager at Bel Air Investment Advisors in California. "Here we are at the end of the year, and it's still relatively strong."
Stocks started the year on a tear, with optimism about an improving job market and a broader economic recovery providing the backdrop to the S&P 500's best first-quarter rally in 14 years.
The index advanced 12 percent by the end of March, closing the quarter at 1,408, its highest in almost four years, with financial companies and technology firms leading the charge. The Dow ended the first quarter at 13,212, logging an 8 percent gain.
Apple was one of the star performers of the first quarter and was probably the year's most talked-about company.
The popularity of the iPhone and iPad led to staggering sales growth that helped push its stock up 48 percent to almost $600 at the end of March. Apple also announced a dividend and overtook Exxon Mobil as the U.S.'s most valuable company.
At the start of the second quarter, the intensifying European debt crisis and concerns about the impact that it would have on global economic growth prompted a sell-off.
By the start of June, U.S. stocks had given up the year's gains. Borrowing costs for Spain surged and investors fretted over the outcome of Greek elections that had the potential to pull the euro currency bloc apart.
The outlook for growth in China, the world's second-largest economy, also began to weigh on investors' minds. Economic growth there slowed to 8.1 percent in the first quarter as export demand waned, and investors worried that it would keep falling.
The Dow fell as low as 12,101 June 4. The S&P dropped to 1,278 June 1.
The second quarter was also marred by Facebook's initial public offering.
The stock sale was one of the most keenly anticipated initial public offerings in years, but investors didn't "like" the $16 billion market debut. The social network priced its IPO at $38 per share, and the stock started to fall soon after the first day of trading on concern about the company's mobile strategy.
Facebook closed as low as $17.73 on Sept. 4 before recovering some of the ground it lost to close the year at $26.62.
Company earnings reports were also starting to make uncomfortable reading for investors. Earnings growth for S&P 500 companies fell as low as 0.8 percent in the second quarter, according to S&P Capital IQ data.
The stock market only recovered its poise after the European Union put together loans to bail out Spain's banks on June 10 and the head of the European Central Bank, Mario Draghi, pledged to do "whatever it takes" to save the euro.
Speculation that the Federal Reserve was set to provide the economy with more stimulus to prevent it from slipping back into recession also bolstered stocks.
The rally even survived a blip when a software glitch at trading firm Knight Capital threw stock prices into chaos Aug. 1.
The firm said the problem was triggered by new trading software it installed. Erroneous orders were sent to 140 stocks listed on the New York Stock Exchange, causing sudden price swings and surging trading volume.
Apple launched the iPhone 5, the latest version of its smartphone, in September, and the company's stock climbed to a record close of $702.10 on Sept. 19. That gave Apple a market value of $658 billion, and many analysts predicted more gains lay ahead.
By the time Fed Chairman Ben Bernanke announced Sept. 13 that the U.S. central bank would start a third round of its bond-purchase program, which is intended to push longer term interest rates lower and encourage borrowing and investment, the S&P 500 had surged 14 percent from its June 1 low. A day later, the index peaked at five-year high of 1,466. The Dow Jones reached its peak for the year of 13,610, Oct. 5.
As is often the case on Wall Street, investors "bought the rumor and sold the fact," and quickly turned their attention to the challenges that lay ahead.
Analysts had also been cutting their outlook for growth in the final quarter of the year. At the start of the second quarter, estimated earnings growth for the period was 15.7 percent. That forecast had fallen to 3.4 percent by Dec. 27.
"One of the blessings that supported the stock market's moves in prior years was earnings growth," said Lawrence Creatura, a portfolio manager at Federated Investors. "That's true this year, but at a decelerating rate. It's not gone unnoticed that earnings growth is slowing, and many forecasts now include a full stall."
Apple's halo also began to slip in the final three months of the year. Its iPad Mini tablet, launched Nov. 2, met with lukewarm reviews, there were hints of unrest among its executive ranks. Investors began to fret that the intensifying competition in the smartphone market would crimp Apple's profits. The stock tumbled, and despite rallying in recent days is still down 27 percent from its September peak.
The year's final twist came in Washington.
Stocks wavered ahead of a presidential election that at times seemed too close to call, and while President Barack Obama ultimately reclaimed the White House by a comfortable margin, the Republicans retained control of the House.
The divided government set the stage for a tense end to the year as Democrats and Republicans sought to thrash out a budget plan that would avoid the U.S. falling off the "fiscal cliff," a series of tax hikes and government spending cuts that economists say would push the economy back into recession.
Initially, markets fell as much as 5 percent in the 10 days after the elections as investors worried that a divided government would not be able to agree on a budget plan to cut the U.S. deficit.
While the S&P 500 managed to recoup those losses by December on optimism that a deal would be reached, some investors are still urging caution. Any agreement will still be "ill-tasting medicine" to the economy, as it will almost certainly involve both spending cuts and tax hikes, says Joe Costigan, director of equity research at Bryn Mawr Trust Company.
"The question is, how much will the drag from the government be offset by business and personal spending," says Costigan. "The market has reasonable expectations for growth priced in, so I don't think we're going to see a big run-up.

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Housing and jobs key to lifting S&P toward record

It may be a big if, but assuming Washington lawmakers can get past the "fiscal cliff," many analysts say that the outlook for stocks next year is good, as a recovering housing market and an improving jobs outlook helps the economy maintain a slow, but steady recovery.
An advance of 10 percent in 2013 would send the S&P 500 toward, and possibly past, its record close of 1,565 reached in October 2007.
A mid-year rally in 2012 pushed stocks to their highest in more than four years. Both the Standard & Poor's 500 and the Dow Jones industrial average gained in 2012. Those advances came despite uncertainty about the outcome of the presidential election and bouts of turmoil from Europe, where policy makers finally appear to be getting a grip on the region's debt crisis.
"As you remove little bits of uncertainty, investors can then once again return to focusing on the fundamentals," says Joseph Tanious, a global market strategist at J.P. Morgan Funds. "Corporate America is actually doing quite well."
Although earnings growth of S&P 500 listed companies dipped as low as 0.8 percent in the summer, analysts are predicting that it will rebound to average 9.5 percent for 2013, according to data from S&P Capital IQ. Companies have also been hoarding cash. The amount of cash and cash-equivalents being held by companies listed in the S&P 500 climbed to an all-time high $1 trillion at the end of September, 65 percent more than five years ago, according to S&P Dow Jones Indices.
By the time trading ended Monday, Republicans and Democrats still hadn't reached a budget compromise — but investors were betting that they would — after President Barack Obama said that a compromise was "within sight," but not finalized. Without a budget agreement, millions of Americans face the prospect of higher taxes and the government would be forced to slash spending, measures that would probably push the economy into recession, economists say.
Assuming a budget deal is reached in a reasonable amount of time, investors will be more comfortable owning stocks in 2013, allowing valuations to rise, says Tanious.
Stocks in the S&P 500 index are currently trading on a price-to-earnings multiple of about 13.5, compared with the average of 17.9 since 1988, according to S&P Capital IQ data. A lower-than-average ration suggests that stocks are cheap.
The stock market will also likely face less drag from the European debt crisis this year, said Steven Bulko, the chief investment officer at Lombard Odier Investment Managers. While policy makers in Europe have yet to come up with a comprehensive solution to the region's woes, they appear to have a better handle on the region's problems than they have for quite some time.
"There is still some heavy lifting that needs to be done in Europe," said Bulko. Now, though, "we are dealing with much more manageable risk than we have had in the past few years."
Next year may also see an increase in mergers and acquisitions as companies seeks to make use of the cash on their balance sheets, says Jarred Kessler, global head of equities at broker Cantor Fitzgerald.
While the number of M&A deals has gradually crept higher in the past four years, the dollar value of the deals remains remains well short of the total reached five years ago. U.S. targeted acquisitions totaled $964 billion through Dec. 27, according to data tracking firm Dealogic. That's slightly down from last year's total of $1 trillion and about 40 percent lower than in 2007, when deals worth $1.6 trillion were struck.
M&A deals are good for stock prices because the acquiring company typically pays a premium for the one it's buying.
Falling interest rates also set off a rally in the bond market. Concerns about swings in stock prices prompted investors to switch money out of stocks and into bond funds. If investors decide that the bond rally may be nearing an end, that flow of funds may be reversed, providing a support for stocks.
"Equities are the best house in a bad neighborhood," says Cantor's Kessler. "Bonds are, not priced to euphoria, but they are definitely rich compared to equities right now."
Not all investors are as sanguine about the prospects for 2013.
The rally in stocks in 2012 had less to do with company earnings and the economy and more to do with monetary stimulus from the Federal Reserve and other central banks around the world, says David Wright, a managing director and co-founder at Sierra Investment Management in Santa Monica, Calif.
Federal Reserve Chairman Ben Bernanke announced Sept. 13 that the central bank would add another round to its bond-purchase program, known as "quantitative easing" on Wall Street, which is intended to lower borrowing costs and boost growth. Speculation that more stimulus was coming had pushed the S&P 500 index to 1,466, its highest close of the year, a day earlier. The Dow peaked for the year at 13,610, Oct. 5.
"The Fed has done everything it can do and is probably pretty close to having used its last bullet," said Wright. "It's been a good year for stocks, but we think that's an artifact of monetary stimulus."
This year's peaks in the Dow and the S&P 500 won't be surpassed in 2013 and stocks may even slump in the first quarter, as investors lower their earnings expectations, Wright says. The money manager also says that any budget plan, regardless of the details, will be negative for stocks as it will involve higher taxes and lower government spending.
Wells Fargo Securities market analyst Gina Martin Adams also says companies will struggle in the first half of the year as the economy flirts with recession. Export growth is slowing and policymakers are struggling to come up with a plan to reduce the budget deficit.
The bank recommends that investors add to their holdings of financial and utilities stocks because low rates should help support steady earnings growth in the early part of the 2013. Financial stocks advanced 25 percent in 2012, making them the best performing industry group in the S&P 500. Utility stocks fell 3.4 percent, the worst performing of 10 industry groups in the index. The bank says investors should reduce their exposure to so-called consumer discretionary stocks, such as hotels and restaurant companies, because consumer spending will likely take a hit next year as taxes rise.
With a backdrop of historically low interest rates and an economy that still needs to address its fiscal imbalances, investors should remain realistic about the returns they are going to get from the stock market, says Darell Krassnoff, managing director at Bel Air Investment Advisors.
"Things are getting better, not worse, but you have to have reasonable expectations," Krassnoff says.

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Asia stocks rise as Japan gets new government

 Asian stock markets rose Wednesday as traders snapped up stocks before the end of the year, while the Tokyo benchmark hit a nine-month high after a new, pro-business government prepared to assume leadership in a country plagued for years by economic lethargy.
Japan's Nikkei 225 index surged 1.5 percent to close at 10,230.36 as a further weakening yen gave momentum to the country's major exporters. That was its highest close since March 27.
Incoming Prime Minister Shinzo Abe has put pressure on the Bank of Japan to raise its inflation target from 1 to 2 percent to extricate the country from two decades of deflation — continually dropping prices — which has deadened economic activity.
Abe named a new Cabinet on Wednesday, following the resignation of Prime Minister Yoshihiko Noda's government. Abe has urged the central bank to take steps to dampen the strength of the country's currency. A strong yen has hobbled big exporters like Toyota by eroding the value of repatriated earnings and making Japanese products more expensive overseas.
Abe has also called for aggressive public works spending to invigorate a languid economy.
South Korea's Kospi rose marginally to 1,982.25. Stocks in mainland China, Singapore, Indonesia and the Philippines also rose. The gains were reflective of investors with extra cash wanting to avoid missing out on an end-of-the-year rally.
"People want to get invested. In previous years, we've seen good rallies around the end of the year," Hong Kong-based analyst Andrew Sullivan said in a recent interview.
Markets in Hong Kong, Australia and New Zealand were closed for holidays. Most markets in Europe reopen Thursday.
Among individual stocks, Japan's Fujitsu Ltd. rose 4.1 percent. Sharp Corp. soared 15.4 percent.
Yonhap News Agency said South Korean mobile carriers fell after being fined for discriminative subsidies. SK Telecom Co., South Korea's top mobile carrier, fell 0.6 percent.
On Wall Street on Monday, the last day of trading before Christmas, stocks fell on concern that time is running out for lawmakers to reach a budget deal to avoid the U.S. going over the "fiscal cliff." U.S. stock markets reopen Wednesday.
For weeks, discussions between the White House and Congress over a budget deal have been the main driver in markets. If a deal isn't reached by the start of 2013, automatic spending cuts and tax increases worth hundreds of billions of dollars will be imposed — which many economists think could push the U.S. economy back into recession.
Benchmark oil for February delivery rose 45 cents to $89.06 per barrel in electronic trading on the New York Mercantile Exchange. The contract closed down 5 cents to $88.61 a barrel on the Nymex on Monday.
In currencies, the euro rose to $1.207 from $1.3192 late Monday in New York. The dollar rose to 85.36 yen from 84.23 yen.

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