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Trader Andrew Silverman, left, works on the floor of the New York Stock Exchange. (Richard Drew/AP)
Trader Andrew Silverman, left, works on the floor of the New York Stock Exchange. (Richard Drew/AP)

Inside the Market

At the open: Stocks volatile as 'fiscal cliff' deadline looms Add to ...

North American stock markets opened mixed and without any clear direction as traders placed bets on whether a deal will soon be reached to avert the U.S. "fiscal cliff."

In early trading, the S&P/TSX composite index was up 13 points, or 0.1 per cent, at 12,329; the S&P 500 was up nearly 2 points, or 0.1 per cent, at 1,404; and the Dow Jones industrial average was down 4 points, or 0.03 per cent, at 12,933.

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Weekend talks failed to produce any breakthroughs in the U.S. negotiations to prevent the more than $600-billion in tax hikes and spending cuts from taking hold Tuesday. But investors aren't panicking, with many believing that the two U.S. political parties will be able to strike a deal in coming days. While that means missing the midnight deadline that looms tonight, a negotiated settlement would come soon enough to prevent any meaningful damage to the U.S. economy.

For now, markets are trading off of the latest headlines concerning the talks. U.S. stock futures this morning, for instance, nearly doubled their gains after Senator Bob Corker told CNBC that he was optimistic that there would be a deal today.

Meanwhile, the Associated Press is reporting that signs of progress are emerging this morning. The news agency quoted a person familiar with the negotiations as saying that Democrats have offered to extend tax cuts for families making up to $450,000 (U.S.) a year and individuals making up to $400,000. President Barack Obama originally wanted the tax cuts to be extended only for families making up to $250,000 a year.

U.S. Senate Majority Leader Harry Reid said Sunday that there are still "significant differences" between Democrats and Republicans. But this morning, Mr. Reid said he was "hopeful" of a deal by tonight's deadline, adding that the tax threshold is the "least of the issues" in talks right now.

The Senate was expected to resume meeting today at 11 a.m. (ET.)

Republicans have been extremely reluctant to allow any tax increases unless they are accompanied by other concessions on the spending side that Democrats are fighting hard against.

Although legislation can be passed well into the new year that can offset some of the impact of the "fiscal cliff" that threatens to push the U.S. economy back into recession, the uncertainty over how and when a deal will materialize is keeping traders highly cautious.

The TSX is also getting a bit of a boost this morning from more encouraging economic data out of China - good news for the resources sector. The Shanghai composite index rose 1.6 per cent overnight to a six-month high after HSBC and Markit figures showed that the nation's factory activity hit a 19-month high in December. The year’s final purchasing managers’ index hit 51.5, up from 50.5 in November when the figure returned to growth after 12 consecutive months of contraction.

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