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Stocks end lower as investors keep eye on 'cliff'

4:16 PM, Dec 4, 2012   |    comments
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NEW YORK - Stocks here and abroad meandered Tuesday as traders weighed a surprise drop in U.S. factory production last month against hopes the U.S. will avoid the so-called "fiscal cliff."

U.S. manufacturing shrank in November to its weakest level since July 2009. One reason for the downturn, the trade group reporting the decline said, is businesses' concern about the fiscal cliff.

Ric Spooner, chief market analyst at CMC Markets in Sydney, said the consensus among market analysts is that Washington will forge a deal before the Jan. 1 cliff deadline. But, by definition, the agreement will include tax hikes and spending cuts sure to impinge on U.S. economic growth.

"There will still be a significant fiscal drag on the U.S. economy next year," Spooner said. But until investors know what the details of a deal will be, "the market has arrived around a level which reflects the risk that is still out there."

A full menu of fresh economic numbers often determines what direction stocks are headed. But this week's flood of data, ranging from Friday's monthly report on employment to readings on factory orders and consumer confidence, might not move the stock market needle as much as usual -- whether the numbers impress or disappoint.

What's to blame? The uncertainty related to negotiations between President Obama and Republicans over how to avert the "fiscal cliff," argues David Kelly, chief global strategist at J.P. Morgan Funds.

"It would be surprising to see a significant market trend emerge in either direction," he says. "For investors, the surplus of uncertainty makes it emotionally difficult to commit to long-term plans."

Not even the November jobs report out Dec. 7 is expected to pack its usual punch. Investors already know the number will be skewed by the Superstorm Sandy's impact.

But it's also because the market is focused on every rumor, new proposal, and negotiation update from the White House and the GOP in a very public disagreement on how to fix the nation's fiscal crisis.

A stock slump - and recession - loom if lawmakers don't compromise before Jan. 1, when a host of tax increases and spending cuts that pleases neither side automatically kick ins.

The sides remain far apart: The my-turn, your-turn brinkmanship continued Monday when President Obama rebuffed a GOP counter-proposal offered by House Speaker John Boehner, R-Ohio, to the initial position Obama floated late last week.

Overseas, European stock trading was mixed. Britain's FTSE 100 index ended fractionally lower at 5,869.04. Germany's DAX 30 index was down 2% to 7,435.12. France's CAC-40 index was up 0.4% to 3,580.48.

Japan's Nikkei 225 index fell 0.3% to close at 9,432.46. Hong Kong's Hang Seng gained 0.2% to 21,799.97. South Korea's Kospi fell 0.3% to 1,935.18. In mainland China, the Shanghai Composite Index rose 0.8% to 1,975.14. The smaller Shenzhen Composite Index added 1.3% to 743.62.

Australia's S&P/ASX 200 shed 0.6% to 4,503.60 after the Reserve Bank of Australia, as expected, cut its benchmark interest rate by a quarter point to 3%, its lowest level since the global financial crisis.

Benchmark oil for January delivery was down 59 cents to $88.50 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose 18 cents to $89.09 Monday.

In currencies, the euro rose to $1.3101 from $1.3060 Monday in New York. The dollar fell to 81.84 yen from 82.24 yen Monday.

The price of gold fell $24.40, 1.4%, to $1,695.20, lowest in a month. And the yield on the 10-year U.S. Treasury is at 1.61%, down from 1.63% Monday.

USA TODAY's Adam Shell and The Associated Press

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