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U.S. Stocks Rise as Lawmakers Upbeat on Budget Talks

11/16/2012 | 06:46am US/Eastern
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--Stocks rise most since election after lawmakers say "fiscal cliff" talks constructive

--Nasdaq Composite posts sixth-straight weekly loss, longest such slump in more than three years

--U.S. industrial production unexpectedly falls

NEW YORK--Stocks posted their biggest daily gain Friday since the U.S. presidential election, after lawmakers said budget talks with the White House were "constructive."

The Dow Jones Industrial Average rose 45.93 points, or 0.4%, to 12588.31, reversing a morning slide of as much as 71 points. The Dow had tumbled since the Nov. 6 presidential election, which turned investors' attention to the looming "fiscal cliff," a series of tax increases and automatic spending cuts that would go into effect on Jan. 1 if a budget deal isn't reached.

The Standard & Poor's 500-stock index added 6.55 points, or 0.5%, to 1359.88. The Nasdaq Composite Index climbed 16.19 points, or 0.6%, to 2853.13.

Ranking Senate and House of Representatives members from both political parties said opening negotiations on a deal were productive. Senate Minority Leader Mitch McConnell, the Kentucky Republican, said measures to raise tax revenue were "on the table."

"If you continue to see reports like this, and not just talk but hard numbers and hard plans, the market will get a little more comfortable that something constructive will happen," said Ryan Larson, head of equity trading at RBC Global Asset Management.

Major stocks benchmarks ended lower for the week. The Dow industrials fell for the fourth-straight week, the longest such slump since August 2011. The Nasdaq dropped for the sixth-straight week, the longest losing streak since July 2008.

"There is a lack of buyers until we have some clarity on the situation going into next year," said David Kelly, J.P. Morgan Funds' chief global strategist. "That said, the most important fundamental is always price. Stocks are extremely cheap compared to bonds."

On the economic front, U.S. industrial production fell 0.4% last month, the Federal Reserve reported, bucking economists' expectation for a 0.2% increase. Superstorm Sandy's battering of the East Coast depressed manufacturing activity. Capacity utilization also decreased. Output figures for September were revised lower.

European markets lost ground, with the Stoxx Europe 600 down 1%, as the start of fiscal negotiations in the U.S. and the escalation of hostilities on the Gaza Strip fed into investor anxiety. The index has fallen for the past two weeks.

Asian markets were mostly lower on the back of U.S. losses over the previous several days. China's Shanghai Composite shed 0.8% and Australia's S&P/ASX 200 gave up 0.3%.

Japan's Nikkei Stock Average shot up 2.2% after rising 1.9% Thursday. Japan lowered its outlook for the economy for a fourth straight month, fueling hopes that a victory by the opposition Liberal Democratic Party in next month's election will lead to easier monetary policies.

Crude-oil prices rose 1.4% to settle at $86.67 a barrel, while gold prices added 0.1% to settle at $1,714.30 a troy ounce. The dollar rose against the euro and yen. The 10-year Treasury note was slightly higher in price to yield 1.573%.

In corporate news, Dell tumbled 7.3% after reporting late Thursday that its quarterly earnings were nearly halved. It also gave a cautious revenue forecast. Fellow PC maker Hewlett-Packard, due to report its results next week, dropped 1.8%.

Gap rose 1% after the retailer raised its earnings forecast for the year. North American same-store sales expanded at Gap stores as well as the company's Banana Republic and Old Navy chains.

Sears Holdings tumbled 19% after reporting a bigger loss for the latest quarter. Same-store sales continued to weaken.

Penn National Gaming rallied 28% after the casino and racetrack operator said it would spin off real-estate assets to shareholders, creating a new publicly traded real-estate investment trust.

Ruckus Wireless, a maker of gear for wireless Internet providers, slid 18% after its initial public offering on the New York Stock Exchange. The deal had priced at the high end of its expected range.

Facebook jumped 6.3%, capping its biggest weekly gain since its May initial public offering. The shares have held up despite the expiration of some lockup agreements this week. Those agreements had prevented some early holders from selling shares.

Write to Matt Jarzemsky at matthew.jarzemsky@dowjones.com

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