US stocks rose, erasing early losses, and commodities pared declines as lawmakers said they are optimistic a budget agreement can be reached to avoid automatic spending cuts and tax increases
The Standard & Poor's 500 Index was up 0.4 per cent at 1,404.62 as of 1:48 p.m. in New York after earlier slumping as much as 1 per cent. The S&P GSCI gauge of 24 raw materials was down 0.8 per cent, trimming an earlier decline almost in half as oil pared losses following a report that showed an unexpected decline in US supplies. Ten-year Treasury rates slipped two basis points to 1.62 per cent and the Dollar Index reversed an earlier advance to fall 0.1 per cent.
Equities reversed declines as Republican House Speaker John Boehner told reporters he is optimistic budget talks can "avert this crisis sooner rather than later." President Barack Obama said more Republicans are agreeing on a "balanced approach" to cut the deficit, and he hopes a deal can be reached before Christmas.
"The market is at the mercy of the fiscal cliff until we get some sort of resolution," Liz Ann Sonders, the New York- based chief investment strategist at Charles Schwab Corp., which has $US1.9 trillion in client assets, said in a telephone interview.
Obama urged Congress to extend tax cuts for the middle class, while Boehner said he continues to oppose the expiration of tax reductions for top earners and Democrats need to get "serious" on budget cuts.
The S&P 500 fell on the first two days of the week after optimism that a budget deal will be made sent the index up 3.6 per cent last week, its biggest gain since June.
Equities extended losses earlier after Commerce Department data showed purchases of new US homes unexpectedly declined 0.3 per cent to a 368,000 annual pace in October, showing limited progress in the housing market recovery.
Among US stocks moving today, Costco Wholesale Corp. advanced 5.8 per cent after saying it plans to pay a special dividend. Knight Capital Group Inc. jumped 14 per cent as Getco LLC submitted a proposal to buy the market maker. Principal Financial Group Inc. dropped 2.1 per cent after the insurer said fiscal 2013 corporate losses could be as much as $US165 million.
The Stoxx Europe 600 Index rose 0.1 per cent, erasing an earlier loss of as much as 0.6 per cent. Celesio AG and Metro AG both dropped more than 2.5 per cent after Franz Haniel & Cie. GmbH said it will reduce its stakes in the companies. Swiss Life Holding AG lost 1 per cent as the life insurer took a larger- than-estimated writedown for its German brokerage. Nestle, which accounts for 3 per cent of the Stoxx 600, gained 1.2 per cent after saying it will form a joint venture with Hutchison China Meditech Ltd.
OAO MegaFon, Russia's second-largest mobile-phone operator, dropped 2 per cent on its debut in London after raising $US1.7 billion in the biggest initial offering by a Russian company in three years. Raiffeisen Bank International AG, eastern Europe's second-biggest lender, sank 5 per cent in Vienna as third-quarter profit missed analysts' estimates.
The yield on 10-year Treasuries fell for a third day. Volatility in US government debt dropped to the lowest in five years yesterday, according to Bank of America Merrill Lynch's MOVE index.
"The US budget issue is posing the biggest uncertainty to the market now given that some data in the world's largest economy have been showing signs of recovery," said Kim Dae Young, a Seoul-based fund manager at KB Asset Management Co., which manages about $US27 billion in assets.
The yen strengthened 0.4 per cent against the euro and 0.3 per cent per dollar. The euro weakened 0.1 per cent to $US1.2934, trimming an earlier 0.5 per cent decline.
Italy's 10-year bonds advanced, pushing the yield down 14 basis points to 4.59 per cent. The rate on similar-maturity Spanish notes slid 19 basis points to 5.33 per cent.
The MSCI Emerging Markets Index slipped 0.5 per cent as Brazil's Bovespa added 0.5 per cent and Russia's Micex Index lost 0.9 per cent. The Shanghai Composite Index slipped 0.9 per cent. The Philippine Stock Exchange Composite Index jumped 0.9 per cent to a record after the country's growth unexpectedly accelerated last quarter at the fastest pace since 2010.