Markets track signs of progress in US budget talks

Associated Press
FILE - In this Nov. 15, 2012 file photo, traders work on the floor at the New York Stock Exchange in New York. Hopes that U.S. political leaders may be inching towards a budget deal that will avoid automatic spending cuts and tax increases have given markets a big boost Thursday, Nov. 29, 2012. (AP Photo/Seth Wenig, File)
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FILE - In this Nov. 15, 2012 file photo, traders work on the floor at the New York Stock Exchange in New York. Hopes that U.S. political leaders may be inching towards a budget deal that will avoid automatic spending cuts and tax increases have given markets a big boost Thursday, Nov. 29, 2012. (AP Photo/Seth Wenig, File)

LONDON (AP) — Markets trimmed their gains on Thursday as investors monitored the uncertain progress by U.S. political leaders to clinch a budget deal that will avoid automatic spending cuts and tax increases.

Stocks started the day strongly on Thursday, carrying over gains from Wednesday, when President Barack Obama and Speaker of the House John Boehner said a deal to avoid a budget crisis could be reached before the year-end.

But those increases were trimmed when Boehner said later Thursday that a recent meeting on the budget had not resulted in any real progress.

European markets had closed just as Boehner issued his latest warning. Britain's FTSE 100 stock index rose 1.2 percent to close at 5,870.30 while Germany's DAX rose 0.8 percent to 7,400.96. The CAC-40 in France gained 1.5 percent to 3,568.88.

In the U.S., the Dow Jones industrial average lost early gains to trade flat at 12,984.92 while the broader S&P 500 index was 0.2 percent higher at 1,412.26.

Getting a deal done before the year-end is necessary to avoid the so-called "fiscal cliff" of automatic spending cuts and tax increases that many economists think could push the U.S. economy, the world's largest, back into recession.

Whether the market gains continue over the coming days could depend on how the negotiations between the White House and Congress progress. Past experience suggests that the discussions may go down to the wire.

"As actions speak louder than words, the risk of sudden sharp corrections will remain as this no doubt drags on towards the New Year," said Mike McCudden, head of derivatives at Interactive Investor.

Meanwhile, markets were supported by government figures showing the U.S. economy grew by an annualized rate of 2.7 percent in the third quarter, up from the previous estimate of 2 percent. Another survey showing that pending home sales in the U.S. rose to a near 6-year high in October also helped sentiment.

"While not unexpected, the upward revision to third quarter GDP bolsters the case that the economy gathered some momentum last summer," said Jim Baird, Partner and Chief Investment Strategist for Plante Moran Financial Advisors.

The focus of attention will likely remain on the U.S. in coming weeks, especially now that Greece's euro partners and the International Monetary Fund have agreed to carry on funding the near-bankrupt country. With an imminent default of Greece off the table, investor worries over Europe have diminished this week.

That has helped shore up the euro, which was trading 0.1 percent higher at $1.2958.

Earlier, Japan's Nikkei 225 index rose 1 percent to close at 9,400.88. Hong Kong's Hang Seng jumped 1 percent to 21,922.89 and South Korea's Kospi added 1.2 percent to 1,934.85.

But mainland Chinese stocks extended their slump to a fourth day. The Shanghai Composite Index lost 0.5 percent to 1,963.49, the lowest closing since Jan. 16, 2009. The smaller Shenzhen Composite Index lost 1 percent 743.43.

Oil prices tracked equities higher, with the benchmark New York rate up $1.33 to $87.82 a barrel.

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