US stocks advanced while European shares closed little changed as investors weighed prospects for a budget deal in Washington. The yen weakened to the lowest since April 2011 after the Liberal Democratic Party returned to power on calls for more monetary easing.

The Standard & Poor's 500 Index rose 0.9 per cent as of 1:24 p.m. in New York while the Stoxx Europe 600 Index retreated less than 0.1 per cent, paring a drop of as much as 0.5 per cent. Ten- year Treasury yields increased five basis points to 1.75 per cent. The yen weakened to a 20-month low against the dollar. Gold erased earlier losses, while sugar, natural gas, coffee, cotton and oil led gains in commodities.

Republicans and Democrats in the US Congress are starting to talk about the benefits of waiting until January to reach a budget deal, even as House Speaker John Boehner signals openness to allowing tax rates to rise for millionaires. President Barack Obama and Boehner met for about 45 minutes today, a spokesman for Boehner said, without giving further details.

"It's a historic tug-of-war, pulling on one side is the fiscal cliff, pulling the other side is continued global monetary easing," David Sowerby, a portfolio manager at Boston- based Loomis Sayles & Co., said in a telephone interview. His firm oversees about $US175 billion. "The rhetoric is heightened in that they will bring us right to the brink."

NY Manufacturing

S&P 500 futures maintained gains before the open of exchanges even after manufacturing in the New York region shrank more than forecast in December, showing weakness in the industry is persisting as the year draws to a close. The Federal Reserve Bank of New York's general economic index dropped to minus 8.1, the fifth month of contraction, from minus 5.2 in November. The median forecast of 55 economists in a survey called for minus 1. Readings less than zero signal contraction.

Compuware Corp. rallied 13 per cent after Elliott Management offered to buy the company. American International Group Inc. rose 2.9 per cent on plans to sell as much as $US6.5 billion of AIA Group Ltd. shares. Apple Inc. climbed 1 per cent to $US513.50 after earlier dropping below $US500 in premarket trading for the first time since February.

Smith & Wesson Holding Corp. led a decline in stocks of firearms makers amid talks about gun control following last week's elementary school shooting that left 20 children dead. Smith & Wesson plunged 3.3 per cent, extending its two-day drop to 7.4 per cent. Sturm Ruger & Co. has declined 6.2 per cent in the period.

Cliff Concerns

The Congressional Budget Office says the US will probably tumble back into a recession should lawmakers fail to reach an accord on the more than $US600 billion in automatic tax increases and spending cuts scheduled to start Jan. 1.

The budget debate is holding stocks hostage, as chief executive officers prepare to cut capital spending for the first time since 2009 should Obama and Congress fail to reach an accord. Expenditures by S&P 500 companies will fall 1.3 per cent in 2013 after three years of growth, according to more than 10,000 analyst estimates compiled by Bloomberg.

Telecommunications companies posted the biggest decline of the 19 industries in the Stoxx 600, falling 1.1 per cent as a group. Royal KPN NV tumbled 15 per cent, its biggest plunge in more than a decade. The phone operator scrapped its final dividend for 2012 after winning a spectrum auction in the Netherlands. Vodafone Group Plc fell 1.7 per cent, Deutsche Telekom AG lost 0.3 per cent and Tele2 AB dropped 1 per cent. The three also bought frequencies.

Clothing Retailer

Aggreko Plc slumped 22 per cent, the most in more than 10 years, after the world's largest provider of mobile-power supplies said that profit will drop in 2013 and it will make provisions of $US85 million for bad debts. Hennes & Mauritz AB gained 3.4 per cent after Europe's second-largest clothing retailer reported better-than-expected November sales.

Telecom and banking stocks are among those being sold today after being "overperformers of last week," Arnaud Scarpaci, a fund manager at Agilis Gestion SA in Paris, who helps oversee about 60 million euros, said in a telephone interview. "There is no closure on the fiscal cliff."

Yearly Returns

The Stoxx 600, Europe's benchmark gauge, has advanced 14 per cent this year amid increased confidence that policy makers are gaining control over the region's debt crisis. The S&P 500 has climbed about 13 per cent and the MSCI Asia Pacific Index has risen about 12 per cent in 2012.

The yen weakened 0.3 per cent to 83.75 per dollar, after earlier depreciating to 83.61. Three years after surrendering half a century of control, Japan's LDP reclaimed power in a landslide election victory yesterday, calling for more government spending and central bank stimulus.

The Japanese currency has lost 12 per cent this year, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar declined 3.1 per cent in the period and the euro dropped 1.5 per cent.

The euro was little changed today at $US1.3173. It strengthened 0.4 per cent to 110.30 yen.

Japanese government bonds fell, pushing up 10-year yields by 1 basis point to 0.735 per cent, the highest since Nov. 26. Ten-year yields on US Treasuries added two basis points to 1.72 per cent.

Gold was up less than 0.1 per cent at $US1,696.90 an ounce in London trading. Bullion is headed for a 12th consecutive yearly gain. Crude oil rose 0.9 per cent to $US87.48 a barrel in New York. US natural gas futures rose 1.9 per cent to $US3.376 per million British thermal units, rising for the first time in eight sessions.

The MSCI Emerging Markets Index fell 0.2 per cent, the first decline in nine days, as suppliers to Apple tumbled after Citigroup cut its estimates for iPhone shipments. Hon Hai Precision Industry Co., the world's largest contract maker of electronics, fell 4.7 per cent in Taipei.

BLOOMBERG