Stocks rally with 'fiscal cliff' deal in sight

Major U.S. stock markets jumped Monday as it appeared Washington policymakers were homing in on a deal to avoid the "fiscal cliff."

The Dow Jones Industrial Average closed the final day of trading in 2012 up 167 points, or 1.3 percent. The S&P 500 and NASDAQ both posted strong gains of more than 1.5 percent on reports that Washington was nearing a deal. Markets will be closed Tuesday for the New Year's Day holiday.

Stocks took a steep dip in the first moments of Monday's trading as investors digested a weekend of fitful negotiations on Capitol Hill. But the roughly 50-point loss posted by the Dow was erased just minutes later, followed by a few hours of markets bouncing between positive and negative territory.

As news began to emerge that the two sides were closing in on a deal, markets took a decisive swing upwards. Markets jumped when it was announced President Obama would address the issue, and then steadily climbed after Senate Minority Leader Mitch McConnellAddison (Mitch) Mitchell McConnellSenators introduce bill to overhaul sexual harassment policy The Hill's Morning Report — Sponsored by PhRMA — Republicans see some daylight in midterm polling Exclusive: Bannon says Rosenstein could be fired 'very shortly' MORE (R-Ky.) said on the Senate floor that the two sides had reached agreement on the tax portion of the fiscal cliff.

Markets have posted some noticeable swings on news, both good and bad, regarding the possibility for a deal to dodge the automatic tax hikes and spending cuts that make up the cliff. For example, stocks took a tumble on Dec. 21, after Speaker John BoehnerJohn Andrew BoehnerRepublicans fear retribution for joining immigration revolt Freedom Caucus bruised but unbowed in GOP primary fights GOP revolts multiply against retiring Ryan MORE (R-Ohio) had to scrap a late-night vote on his alternative tax plan when he failed to garner enough support.

But as both parties are spending the final hours of 2012 still working towards a fiscal-cliff agreement, markets have yet to offer dramatic swings that have come from previous bouts of Capitol Hill stalemates.

The Dow famously plunged 777 points after the House rejected a financial market bailout package in 2008. The collapse helped spur lawmakers to push a similar bill through just days later. And markets logged triple-digit losses amid the 2011 debt-limit standoff, and experienced further turmoil after that eleventh-hour battle led to the first ever downgrade of the nation's credit rating by Standard & Poor's.