U.S. stocks advance while Treasuries retreat amid budget talks

U.S. stocks rose, sending the Standard & Poor’s 500 Index to an almost two-month high, as investors weighed prospects for a budget deal in Washington. The yen fell to 20-month low as the Liberal Democratic Party returned to power on calls for more monetary easing.

The S&P 500 rose 1.2 percent to 1,430.35 according to preliminary closing at 4 p.m. in New York, its highest closing level since Oct. 22. Ten-year Treasury yields increased seven basis points to 1.77 percent. Gold erased earlier losses, while sugar, natural gas, coffee, cotton and oil led gains in commodities.

Republicans and Democrats in the U.S. Congress are starting to talk about the benefits of waiting until January to reach a budget deal, even as House Speaker John Boehner signals openness to allowing tax rates to rise for millionaires. President Barack Obama and Boehner met for about 45 minutes today, a spokesman for Boehner said, without giving further details.

“It’s a historic tug-of-war, pulling on one side is the fiscal cliff, pulling the other side is continued global monetary easing,” David Sowerby, a portfolio manager at Boston- based Loomis Sayles & Co., said in a telephone interview. His firm oversees about $175 billion. “The rhetoric is heightened in that they will bring us right to the brink.”

N.Y. Manufacturing

S&P 500 futures maintained gains before the open of exchanges even after manufacturing in the New York region shrank more than forecast, showing weakness in the industry is persisting as the year draws to a close. The Federal Reserve Bank of New York’s general economic index dropped to minus 8.1, the fifth month of contraction, from minus 5.2 in November. The median forecast of 55 economists in a survey called for minus 1. Readings less than zero signal contraction.

Compuware Corp. rallied after activist investor Elliott Management Corp. offered to buy the company for $2.3 billion. American International Group Inc. rose on plans to sell as much as $6.5 billion of AIA Group Ltd. shares. Apple Inc. climbed after earlier dropping below $500 in premarket trading for the first time since February.

Smith & Wesson Holding Corp. led a decline in stocks of firearms makers amid talks about gun control following last week’s elementary school shooting that left 20 children dead.

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