By Angela Moon
NEW YORK, Dec 31 (Reuters) - U.S. stock index futures edged
higher on Monday after a five-session losing streak as political
leaders in Washington worked against the clock to keep the
United States from going over the "fiscal cliff."
Negotiations continued between top lawmakers and the White
House on how to head off $600 billion in automatic tax hikes and
spending cuts that kick in Jan. 1 and could drag the economy in
The lack of panic on markets so far suggests 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 have
only a gradual impact.
The Democrat-controlled Senate reconvenes on Monday with
only hours to find a legislative solution, most likely a
stop-gap deal, that would also have to be passed by the
Republican-majority House of Representatives.
Despite the gains in futures, stocks still could fall on
Monday when the cash markets open if there is no sign lawmakers
are making progress.
"I expect today's move to be exaggerated considering that it
will be a light volume day. The market is hopeful that there
will be some kind of temporary fix here, so if we don't see a
deal here, not even a mini deal, I suspect the market could sell
off," said Peter Cardillo, chief market analyst for Rockwell
Global Capital in New York.
While midnight on Monday marks the deadline for a deal, the
government can pass legislation in 2013 that retroactively
prevents the United States going over the fiscal cliff, an
option that is viewed as politically easier.
S&P 500 futures rose 3 points and were above fair
value, a formula that evaluates pricing by taking into account
interest rates, dividends and time to expiration on the
contract. Dow Jones industrial average futures added 23
points, while Nasdaq 100 futures dropped 2.5 points.
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 British,
French, Dutch and Spanish markets were only open for half a
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.
The S&P 500 closed at 1,402.43 at 4 p.m. 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 do not match point-by-point, but the size of the disparity
on Monday points to a weak opening in stocks.
On Sunday, President Barack Obama, appearing on NBC's "Meet
the Press," said investors could begin to show greater concerns
in the new year.
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 despite constant chatter about the fiscal cliff, though
the last few days showed increased worry. 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.
The CBOE Volatility Index rose to its highest level
since June on Friday, closing at 22.72.