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Market update: Stocks rally as 'fiscal cliff' deal nears

A trader works on the floor at the New York Stock Exchange in New York, Friday, Dec. 28, 2012. Stocks were heading lower Friday, for a fifth day, on concern that Washington lawmakers will fail to reach a budget deal before a year-end deadline.

Seth Wenig/AP

North American stock markets extended gains in late afternoon trading as evidence mounted that a deal on averting the "fiscal cliff" was rapidly coming together on Monday.

Mitch McConnell, the top U.S. Senate Republican, said talks with Vice President Joe Biden over the past 24 hours were "successful," with agreements reached on all tax issues. Mr. McConnel said a budgetary agreement is now "very, very close," and expects the U.S. Senate to pass the tax portions on the plan.

Those comments followed remarks earlier this afternoon from President Barack Obama, who stated a deal "is within sight," although not yet done.

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At about 3 p.m. (ET), U.S. and Canadian major indexes were pressing to fresh intraday highs. The S&P/TSX composite index was up 134 points, or just over 1 per cent, at 12,451; the S&P 500 was up 20 points, or 1.4 per cent, at 1,422; and the Dow Jones industrial average was up 140 points, or 1.0 per cent, at 13,079.

Mr. Obama is now pressuring Congress to put the finishing touches on averting the more than $600-billion (U.S.) in tax hikes and spending cuts that take hold at midnight (ET) tonight.

The emerging deal would see income taxes go up only on households earning more than $450,000 a year. Mr. Obama had sought higher taxes for families making more than $250,000, while extending Bush-era tax cuts for everyone else.

But all is not settled. Republicans are demanding to postpone about $110-billion in spending cuts set to take effect on Jan. 2 for only three months. Democrats want the cuts put off for a full year, giving Congress more time to seek an alternative and to ensure that those spending cuts are left out of upcoming talks to raise the debt ceiling.

As the Globe's Konrad Yakabuski reports, even if an agreement is reached, it would be characterized as a "mini-deal" that leaves most of the tough fiscal issues facing the country to be settled later. And there is no guarantee that a deal could pass both houses of Congress before the deadline.

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About the Author
Investment Editor

Darcy Keith is The Globe and Mail's Investment Editor. He has been a business journalist since 1992 and joined the Report on Business in 2010 from Yahoo! Canada, where he was the senior editor of finance. More

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