* Compromise approved by Congress prompts stocks' rally
* Zipcar soars after Avis Budget's $500 million offer to buy
* Bank shares rise as settlement nears
* Dow up 2.4 pct, S&P 500 up 2.5 pct, Nasdaq up 3.1 pct
By Chuck Mikolajczak
NEW YORK, Jan 2 (Reuters) - U.S. stocks kicked off the new
year with their best day in over a year on Wednesday, sparked by
relief over a last-minute deal in Washington to avert the
"fiscal cliff" of tax hikes and spending cuts that threatened to
derail the economy's growth.
In 2013's first trading session, the S&P 500 achieved its
biggest one-day gain since Dec. 20, 2011, pushing the benchmark
index to its highest close since Sept. 14.
Concerns over Washington's ability to sidestep the cliff had
driven the S&P 500 down for five straight sessions, before signs
that a resolution was near sent the benchmark index higher on
the final trading session of 2012.
The CBOE Volatility Index or the VIX, a gauge of
investor anxiety, dropped 18.5 percent to 14.68 at the close.
The VIX has fallen 35.4 percent over the past two sessions.
The Dow Jones industrial average jumped 308.41
points, or 2.35 percent, to 13,412.55 at the close. The Standard
& Poor's 500 Index gained 36.23 points, or 2.54 percent,
to 1,462.42. The Nasdaq Composite Index climbed 92.75
points, or 3.07 percent, to end at 3,112.26.
U.S. markets were closed on Tuesday for New Year's Day.
Market breadth reflected the strong rally, with 10 stocks
rising for every one that fell on the New York Stock Exchange.
All 10 of the S&P 500 industry sector indexes gained at least 1
percent. The S&P financial index shot up 2.9 percent.
The S&P Information Technology index gained 3.2
percent, including Hewlett-Packard, which climbed 5.4
percent to $15.02. HP's gain followed a miserable 2012 when the
stock fell nearly 45 percent as one of the worst performers on
the S&P 500 for 2012.
On Tuesday, Congress passed a bill to prevent huge tax hikes
and delay spending cuts that would have pushed the world's
largest economy off a "fiscal cliff" and possibly into
The vote avoided steep income-tax increases for a majority
of Americans, but failed to resolve a major showdown over
cutting the budget deficit, leaving investors and businesses
with only limited clarity about the outlook for the economy.
Spending cuts of $109 billion in military and domestic programs
were temporarily delayed, and another fight over raising the
U.S. debt limit also looms.
"We got through the fiscal cliff. The next big thing, and
probably more contentious thing, is negotiating the debt ceiling
and possibly entitlement reform in early 2013," said Jim
Russell, senior equity strategist for U.S. Bank Wealth
Management in Cincinnati.
Hard choices about budget cuts and the critical need to
raise the debt ceiling will confront Congress about the same
time in two months "so the fur will be flying," Russell said.
U.S. stocks ended 2012 with the S&P 500 up 13.4 percent for
the year, as investors largely shrugged off worries about the
fiscal cliff. For the year, the Dow gained 7.3 percent and the
Nasdaq jumped 15.9 percent.
Bank shares rose following news that U.S. regulators are
close to securing another multibillion-dollar settlement with
the largest banks to resolve allegations that they unlawfully
cut corners when foreclosing on delinquent borrowers.
Bank of America Corp rose 3.7 percent to $12.03 and
Citigroup Inc gained 4.3 percent to $41.25. The KBW bank
index rose 3.2 percent.
Shares of Zipcar Inc surged 47.8 percent to $12.18
after Avis Budget Group Inc said it would buy Zipcar for
about $500 million in cash to compete with larger rivals Hertz
and Enterprise Holdings Inc. Avis advanced 4.8 percent to
Shares of Apple rose 3.2 percent to $549.03,
helping to lift the S&P information technology index up
3.2 percent following a report that the most valuable tech
company has started testing a new iPhone and a new version of
its iOS software.
Economic data from the Institute for Supply Management
showed U.S. manufacturing ended 2012 on an upswing despite fears
about the fiscal cliff, but the Commerce Department reported
that construction spending fell in November for the first time
in eight months.
Volume was heavy, with about 7.8 billion shares traded on
the New York Stock Exchange, the NYSE MKT and the Nasdaq, well
above the 2012 daily average of 6.42 billion.