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The markets closed out the year in rally mode amid hopes lawmakers will be able to finalize a deal to avert the fiscal cliff. Despite a tumultuous year-end run, the major market averages all tacked on solid gains for 2012.
According to preliminary calculations, the Dow Jones Industrial Average rallied 168 points, or 1.3%, to 13106, the S&P 500 surged 23.9 points, or 1.7%, to 1426 and the Nasdaq Composite soared 59.2 points, or 2%, to 3020.
For the year, the Dow added 7.3%, the S&P 500 tacked on 13.4% and the Nasdaq jumped 16%.
The markets had been on a five-day losing streak as of Friday amid concerns about the fiscal cliff. However, sentiment took a swift turn for the upside on Monday amid hopes a last-minute deal can be forged.
The remarks from McConnell, a Republican, came after similarly optimistic remarks from Democratic President Barack Obama. Analysts expect a deal to be passed in the Senate first, and then move to the House of Representatives, before landing on Obama's desk. It wasn't clear immediately whether Republicans in the House would pass the Senate bill that is under discussion.
The bill in the Senate would lower taxes on individual filers making $400,000 a year or less and joint filers making less than $450,000 a year, a source close to the discussion told FOX Business' Rich Edson. It would also permanently fix the alternative minimum tax, extend emergency unemployment benefits and likely push back automatic spending cuts, this person said.
The fiscal cliff -- a mixture of painful tax hikes and spending cuts -- is set to be triggered in mere hours as America celebrates New Year's. Still, analysts at Nomura pegged the odds of a "mini deal" before the fiscal cliff at one-in-three. The investment bank also rang warning bells about the impact the ongoing strife on Capitol Hill will have on the U.S. economy.
"Our outlook for the first quarter has for some time anticipated a significant economic slowdown in response to fiscal drag and a contentious fiscal debate," the analysts wrote.
"We will continue to monitor closely how businesses, consumers, and financial markets react to the fiscal debate in coming weeks."
On the economic front, traders got a look at the manufacturing sector in China. The world's second-biggest economy saw its factories rev up at the fastest pace since May 2011, according to a report by HSBC.
As the week progresses, there will be several reports on the U.S. economy, capped with the monthly employment report from the labor department.
Energy futures were in the green. The benchmark crude contract rose $1, or 1.1%, to $91.82 a barrel. Wholesale New York Harbor gasoline advanced 0.43% to $2.812 a gallon. In metals, gold gained $19.90, or 1.2%, to $1,676 a troy ounce.
The Euro Stoxx 50 rose 0.34% to 2636, the English FTSE 100 dipped 0.47% to 5898 and the German DAX fell 0.57% to 7612.
In Asia, the Japanese Nikkei 225 climbed 0.7% to 10385 and the Chinese Hang Seng edged lower by 0.04% to 22657.