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U.S. stock index futures up as 'cliff' talks go on

Source : REUTERS
Last Updated: Mon, Dec 31, 2012 09:00 hrs

By Ryan Vlastelica and Blaise Robinson

Dec 31 (Reuters) - U.S. stock index futures signalled a slightly higher open on Wall Street on Monday, with stocks set to snap a five-session losing streak as talks continued in Washington over resolving the "fiscal cliff".

Futures for the S&P 500 were up 0.43 percent, Dow Jones futures up 0.23 percent and Nasdaq 100 futures up 0.09 percent at 0825 GMT.

European markets were slightly down on Monday morning, although trading was muted as markets in Germany, Switzerland, Italy, Denmark, Norway, and Sweden were closed while UK, French, Dutch and Spanish markets were only open for half a session.

Negotiations were set to continue on Monday between lawmakers and the White House on how to deal with the $600 billion in automatic tax hikes and spending cuts that kick in at the start of January and could drag the economy in recession.

The Senate reconvenes on Monday after the open of equity trading with only hours to find some sort of stop-gap deal that would also have to be passed by the House of Representatives.

Despite the slight gains indicated by futures, stocks still could end up falling on Monday when the cash markets open if there is no sign lawmakers are making progress.

While hope has largely evaporated for any sort of broad deal, the lack of panic on markets shows that investors still expect officials to find a solution to the budget problems early in the New Year. The measures that kick in on Jan. 1 will also only have a gradual impact.

"There is always a chance for a massive stalemate, and we could see a lot more volatility if we get to a point where there's no more hope. Right now there's still hope," said Adam Sarhan, chief executive of Sarhan Capital in New York.

Midnight on Monday marks the deadline for a deal, though the government can pass legislation in 2013 that retroactively prevents going over the cliff, an option that is viewed as politically easier.

"At some point, someone will have to blink, or Congress will just come in early in 2013 and vote for a tax cut," Sarhan said. "Something will be done to resolve this."

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.

The rise in the futures market on Monday does not necessarily suggest a rally in the making. The cash market and futures markets closed with a wide gulf on Friday, by virtue of the extra 15 minutes of trading in futures.

The S&P 500 closed at 1,402.43 at 4 p.m. ET on Friday, down 1.1 percent, but futures continued to fall before closing 15 minutes later with a loss of 1.9 percent. S&P futures and the S&P cash index don't match point-by-point, but that kind of disparity points to a weak opening in stocks on Monday.

One hour before they had hoped to present a plan on Sunday, Democratic and Republican Senate leaders said they were still unable to reach a compromise.

Earlier in the day, President Barack Obama, appearing on NBC's "Meet the Press," said investors could begin to show greater concerns in the new year.

"If people start seeing that on January 1st this problem still hasn't been solved ... then obviously that's going to have an adverse reaction in the markets," he said.

Investors have remained relatively sanguine about the process, believing that 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.

The Dow industrials and the S&P 500 each lost 1.9 percent last week, after stocks fell for five straight sessions, which marked the S&P 500's longest losing streak in three months. Equities have largely performed well in the last two months despite constant chatter about the fiscal cliff, but the last few days shows a bit of increased worry.

The CBOE Volatility Index rose to its highest level since June on Friday, closing at 22.72.



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