By Angela Moon
NEW YORK, Dec 31 (Reuters) - U.S. stocks were set for a flat
open on the last trading day of the year on Monday as political
leaders in Washington struggled to find a bipartisan agreement
that would keep the United States from going over the "fiscal
Negotiations continued between top lawmakers and the White
House on how to head off the fiscal cliff - $600 billion in
automatic tax hikes and spending cuts that kick in Jan. 1.
Economists say it could drag the economy in recession.
A Republican Senate leadership aide described discussions
between Senate Republican leader Mitch McConnell and Vice
President Joe Biden as "good talks," saying they lasted late
into Sunday evening.
The lack of panic suggests investors still expect officials
to find a solution to the budget problems early in the New Year.
Despite recent nervousness over the stalemate in U.S. budget
talks, the S&P 500 is up 11.5 percent for the year compared with
a nearly flat performance in 2011. The Dow industrials are up
5.9 percent and the Nasdaq composite is up 13.6 percent for
The Democrat-controlled Senate reconvenes later in the day,
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.
"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 is 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 12.5 points, in line with 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 89
points, while Nasdaq 100 futures dropped 2.5 points.
Also supporting the market, activity in China's vast
manufacturing sector achieved its fastest pace in December since
May 2011, a survey of private factory managers showed, with a
sub-index for new orders pointing to continued strength in the
European shares ended slightly higher in the final truncated
trading session of 2012, but investors were unwilling to take on
much risk, given the U.S. budget crisis and after strong
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, 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, buoyed by signs of economic recovery, an improving
housing market and monetary policy designed to stimulate growth
and lower unemployment.