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 McConnell (R-Ky.) said on the Senate floor that the two sides had reached agreement on the tax portion of the fiscal cliff.

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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 Boehner (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.