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A near triple-digit rally on Wall Street evaporated on Tuesday as initial enthusiasm for an apparent compromise on extending the Bush tax cuts was overshadowed by a resurgent U.S. dollar and Democratic dissension to the tax deal.
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The Dow Jones Industrial Average fell 3.03 points, or 0.03%, to 11359.16, the Standard & Poor's 500 gained 0.63 points, 0.05%, to 1223.75 and the Nasdaq Composite jumped 3.57 points, or 0.14%, to 2598.49. The FOX 50 advanced 2.48 points, or 0.28%, to 875.58.
All eyes were on Washington on Tuesday as Wall Street was caught off guard by the apparent deal to prevent taxes from rising on all Americans at the end of the year. The markets initially cheered the news, especially stimulative measures in the compromise.
“You can’t [overstate] how positive this is” for stock prices, said Art Hogan, chief market strategist at Jefferies & Co. He said he doesn’t believe the tax deal was built into stock prices, adding, “I think this is an event that has more legs to it.”
However, a gain of nearly 90 points on the Dow vanished late in the day as the dollar rallied and Democratic leaders warned the deal on taxes is not yet done.
If Congress is unable to reach a compromise on the tax cuts, “We’re going to be in for one heck of a bumpy ride,” Ted Weisberg, a veteran NYSE trader from Seaport Securities, told FOX Business. “If it does, it eliminates a huge, huge unknown for investors, traders, businessmen -- for everybody.”
Despite the turbulence, the Nasdaq Composite managed to close at its highest level since January 2008. The index was boosted by solid gains for tech stocks like Yahoo! (NASDAQ:YHOO) and Oracle (NASDAQ:ORCL).
But just over half of the Dow's 30 components landed in the green, led by General Electric (NYSE:GE) and Chevron (NYSE:CVX). The index's worst performers were 3M (NYSE:MMM) and JPMorgan Chase (NYSE:JPM).
Wall Street initially cheered the apparent compromise to extend all Bush-era tax cuts for two years that was unveiled by the White House. However, Senate Majority Leader Harry Reid and other Democratic leaders said there is no consensus on the tax deal, raising questions about whether or not the compromise will have enough votes to pass.
In addition to preventing taxes from rising on all Americans at the end of the year, the tentative deal would also reduce worker payroll taxes for one year, extend tax breaks on dividends and capital gains and create a 13-month extension of unemployment benefits. In particular, traders cheered a reduction in payroll taxes, a move that some economists believe will help stimulate the sluggish economy.
Wall Street came under pressure as a rally for the euro lost steam despite Ireland passing an emergency budget to clear the way for a bailout from the European Union. The U.S. dollar also came into favor as Treasurys lost ground, with the yield on the 10-year note hitting its highest level since June and the five-year note's yield seeing its biggest one-day rise in 18 months.
U.S. markets have been taking their cues from the currency markets as a weaker greenback helps commodities and exports. The euro fell 0.26% to $1.3270.
Commodities dipped into the red as the euro rally lost steam. Crude oil slid 69 cents a barrel, or 0.77%, to $88.69. Gold declined $7.00 a troy ounce, or 0.49%, to $1,408.30.
On the economic front, the Federal Reserve said U.S. consumer credit jumped by $3.4 billion in October, the largest amount in more than two years. After 19 straight months of declines, consumer credit has increased in back-to-back months.
Talbots (NYSE:TLB) plummeted more than 20% after taking an axe to its financial guidance due to heavy promotions. The women’s apparel retailer sees 2010 non-GAAP EPS of 70 cents to 78 cents, which would significantly miss the Street’s view of 87 cents. Talbots warned it sees a non-GAAP loss of 4 cents a share to a non-GAAP profit of 3 cents a share for the current quarter.
Citigroup (NYSE:C) climbed 3% after the Treasury Department said it has sold off its remaining shares of the New York bank with a $12 billion profit for taxpayers. The announcement marks the end of the U.S.'s controversial ownership of Citi, which needed a $45 billion rescue during the financial crisis.
AGL Resources (NYSE:AGL) unveiled a $2.4 billion bid to take over peer Nicor (NYSE:GAS). Valued at $53 a share, the deal places a 13% premium on Nicor’s closing price on Monday and would double Atlanta-based AGL’s customers to nearly 5 million.
AutoZone (NYSE:AZO) revealed a stronger-than-expected 20% jump in fiscal first-quarter profits to $3.77 a share. Analysts had called for EPS of just $3.44. AutoZone, which is the largest U.S. auto-parts retailer, said its revenue climbed 13% to $1.79 billion, topping the Street’s view or $1.72 billion.
Visa (NYSE:V) suspended all payments to WikiLeaks, leaving the controversial site with fewer sources of revenue, The Associated Press reported. EBay's (NASDAQ:EBAY) PayPal previously cut ties with WikiLeaks.
The U.K.'s FTSE 100 rose 0.66% to 5808.45, France's CAC 40 soared 1.63% to 3810.50 and Germany's DAX jumped 0.68% to 7001.91.
In Asia, Tokyo's Nikkei 225 fell 0.26% to 10141.10, Hong Kong's Hang Seng advanced 0.82% to 23428.20 and China's Shanghai Composite climbed 0.65% to 2875.86.