By Chuck Mikolajczak
NEW YORK (Reuters) - U.S. stocks advanced on Monday in a choppy session after comments from President Barack Obama suggesting a deal on the "fiscal cliff" was drawing closer.
The S&P 500 jumped above 1 percent after Obama said it appeared a deal was within sight, but quickly cut some gains when the president noted an agreement was not complete yet. With just an hour left in the final session of 2012, though, the S&P 500 resumed its climb and shot above 1 percent.
A source familiar with the matter said an emerging deal, if adopted by Congress and President Barack Obama, would raise $600 billion in revenue over the next 10 years by increasing tax rates for individuals making more than $400,000 and households earning above $450,000 annually.
A plan is needed in order to avert a combination of tax hikes and spending cuts that many believe could push the U.S. economy into recession.
"There is positive momentum in the market, and we are building up to a deal - markets are definitely starting to price in a deal sometime before tomorrow," said Peter Kenny, managing director at Knight Capital in Jersey City, New Jersey.
"This sounds counterintuitive, but if that doesn't happen, even if we don't get a bridge deal done, that is just going to increase the pressure on a deal getting done."
The gains put the S&P 500 on track to snap a five-day losing skid, its longest losing streak since September.
The Dow Jones industrial average gained 136.08 points, or 1.05 percent, to 13,074.19. The Standard & Poor's 500 Index rose 19.82 points, or 1.41 percent, to 1,422.25. The Nasdaq Composite Index climbed 59.89 points, or 2.02 percent, to 3,020.20.
The S&P 500 is now up 13.1 percent for the year, compared with a flat performance in 2011. The Dow is up 7 percent and the Nasdaq is up 15.9 percent.
Gains in Apple Inc
The Dow was bolstered by Caterpillar Inc
While a deal on the cliff is not yet official, investors may be ready to take on more risk next year in hopes of a greater reward.
Bank stocks rose after a New York Times report that U.S. regulators are nearing a $10 billion settlement with several banks that would end the government's efforts to hold lenders responsible for faulty foreclosure practices.
Bank of America Corp
Financial stocks were among the strongest of the year, with the S&P financial index surging 25.2 percent for 2012 so far. Bank of America is the top-performing Dow component, with its stock price more than doubling over the past 12 months.
(Reporting by Chuck Mikolajczak; Editing by Jan Paschal)