Wall Street Posts Solid Gains, But Budget Worries Linger

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Stocks climbed on Tuesday, led by rallying technology, health-care and telecommunications shares. However, the broad markets pulled back from session highs amid uncertainty over U.S. budget talks.

Today's Markets

The Dow Jones Industrial Average climbed 78.56 points, or 0.6%, to 13248, the S&P 500 gained 9.29 points, or 0.65%, to 1427.84 and the Nasdaq Composite rallied 35.34 points, or 1.18%, to 3022.30. The FOX 50 tacked on 8.67 points, or 0.83%, to 1053.36.

Every major sector closed in the green on the day, with the blue chips landing at their highest level since November 6 and the Nasdaq hitting territory unseen in nearly two months. The strong performance on Wall Street echoed gains across many European exchanges.

A closely-watched survey from the ZEW Institute in Germany helped whet traders' buying appetites. The gauge of investor confidence surged 22.6 points in December to 6.9 -- the first positive reading since May.

"The indicator’s rise shows that the financial market experts expect the economic activity to stabilize until early summer 2013," ZEW said in the report.

There were also several reports on the U.S. economy.

The U.S. trade deficit rose to $42.2 billion in October from a downwardly-revised $40.3 billion in September as exports hit the lowest level since February and imports hit the lowest level since April 2011. Economists were expecting the deficit to rise to $42.6 billion. The data on trade figure directly into broader measures of economic growth. The bigger the deficit, the more it pulls from gross domestic product.

Another report from the Commerce Department showed wholesale inventories jumping 0.6% in October, a bigger gain than the 0.4% economists expected. Inventory accumulation is generally seen as a sign that companies are expecting to see stronger demand for products.

The Federal Reserve also kicks off its two-day policy setting meeting on the day. Traders will be paying close attention to what the central bank plans to do when Operation Twist ends and any change to the so-called forward guidance on interest rates. On Wednesday, the central bank releases its policy statement and forecasts. Fed Chairman Ben Bernanke is also set to hold a news conference.

Traders have largely been able to shake off jitters about renewed political uncertainty in Italy sparked by Prime Minister Mario Monti's unexpected resignation plans. Perhaps in a sign of the fortitude, Spain's Treasury sold $5 billion in short-term debt in a strong auction Tuesday. Indeed, yields fell as compared to a November auction. Still, the borrowing costs on longer-term debt in the secondary market for both countries has continued climbing this week.

The budget fight in Washington, D.C. also remained in focus. The Wall Street Journal reported early Tuesday that progress was made in talks between President Barack Obama and Speaker of the House of Representatives John Boehner. However, mixed messages from Boehner and Senate Majority Leader Harry Reid took out some of that momentum.

In corporate news, HSBC (NYSE:HBC) said it will pay a record $1.9 billion to settle U.S. charges of "inadequate compliance with anti-money laundering and sanctions laws."

The U.S. government sold the remainder of its common stock stake in American International Group (NYSE:AIG). In total, the sale has yielded a profit of $22.7 billion.

Energy futures climbed modestly. The benchmark crude contract climbed 27 cents, or 0.27%, to $85.79 a barrel. Wholesale New York Harbor gasoline gained 0.48% to $2.611 a gallon. In metals, gold edged lower by $4.80, or 0.28%, to $1,710 a troy ounce.

Foreign Markets

The Euro Stoxx 50 jumped 1.1% to 2624, the English FTSE 100 gained 0.06% to 5925 and the German DAX rose 0.78% to 7590.

In Asia, the Japanese Nikkei 225 slipped 0.09% to 9525 and the Chinese Hang Seng ticked up by 0.21% to 22324.