Wall Street edged higher in a choppy session on Monday, with the S&P 500 on track for double-digit gains for the year, as politicians bargained for a deal to avert the "fiscal cliff."
Taxes were set to rise for many Americans this week unless U.S. lawmakers could cut a last-minute deal, an outcome that was possible but seemed unlikely.
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Senate Majority Leader Harry Reid said the Senate would reconvene at 11 a.m. Washington time (1600 GMT) to continue discussions on the fiscal cliff - $600 billion in automatic tax hikes and spending cuts that kick in January 1.
The last trading session of the year is expected to be volatile on low volume and as investors keep a close eye on headlines out of Washington.
"Even if we end up with a deal, it will be just a band-aid, not a real fix. So we will see a volatile session today, with all eyes on the debates, comments out of Washington," said Tim Ghriskey, chief investment officer at Solaris Group in Bedford Hills, New York.
"I'm not expecting a major rally or a selloff," Ghriskey added.
Despite recent declines over the stalemated budget talks, the S&P 500 is up about 11.5 percent for the year compared with a nearly flat performance in 2011. The Dow industrials are about 6 percent higher and the Nasdaq composite is up about 14 percent for 2012.
The Dow Jones industrial average was up 7.45 points, or 0.06 percent, at 12,945.56. The Standard & Poor's 500 Index was up 4.53 points, or 0.32 percent, at 1,406.96. The Nasdaq Composite Index was up 17.63 points, or 0.60 percent, at 2,977.95.
Bank stocks rose after a New York Times report that U.S. regulators are nearing a $10 billion settlement with several banks that would end the government's efforts to hold lenders responsible for faulty foreclosure practices.
Bank of America Corp was up 0.4 percent at $11.41 and Citigroup rose 0.2 percent to $39.08.
While midnight is the deadline for a fiscal deal, the government can pass legislation in 2013 that retroactively cancels or moderates the impact of going over the fiscal cliff.
Investors have remained relatively sanguine about the process, believing it will eventually be solved. In the past two months markets have not shown the kind of volatility that was present during the fight to raise the debt ceiling in 2011.
Rather, equities have largely performed well in the last two months, buoyed by signs of economic recovery, an improving housing market and monetary policy designed to stimulate growth and lower unemployment.
However, U.S. stocks dropped on Friday, with significant losses in the last minutes of trading, as prospects for a deal worsened at the beginning of the weekend.
On Sunday, President Barack Obama said on NBC's "Meet the Press" investors could begin to show greater concerns in the new year.
(Reporting By Angela Moon; Editing by Kenneth Barry)