North American stock markets were in rally mode Monday as traders felt that cool heads will prevail and American politicians can come together to agree on a budget deal by the end of next month.
Without such a deal, the U.S. economy risks going over a so-called fiscal cliff â€” a severe setback from a combination of automatic spending cuts and the expiration of Bush-era tax cuts.
The S&P/TSX composite index jumped 143.51 points to 12,021.23, while the TSX Venture Exchange gained 15.26 points to 1,250.6.
The Canadian dollar was up 0.46 of a cent to 100.36 cents US.
U.S. indexes surged with the Dow Jones industrials running up 166.51 points to 12,754.82, the Nasdaq climbed 46.97 points to 2,900.1 and the S&P 500 index was ahead 21.85 points to 1,381.73.
Fiscal cliff concerns started to ease Friday afternoon following a meeting between congressional leaders and U.S. President Barack Obama, with both Republicans and Democrats striking a more conciliatory stance.
And on Sunday, Obama said: "I am confident we can get our fiscal situation dealt with."
While there is still room for plenty of disappointment in resolving this potential crisis, markets were on the lookout for anything positive out of the negotiations.
But analysts said more than just reassuring words will be needed.
"If we don't get it right, that will be very poor for markets. On the flip side, if there is an outcome it could be very market friendly and so the markets need to trade on one of those two directions," said Paul Taylor, chief investment officer, BMO Harris Private Banking.
"Rhetoric only goes so far and so the market will now need to wait. This is a pretty slow week with U.S. Thanksgiving so it's more a question of what's the timeline, how long will it take for the story to be wrote on this current episode on discussions related to the fiscal cliff."
Markets finished positive on Friday but prior to that the TSX had tumbled 3.9 per cent since the election Nov. 6 as a U.S. economic shock would impact economies around the world. A sudden slowing of economic growth would be bad news for a resource heavy market like Toronto, since a lessening of demand for oil and metals would put pressure on mining and energy stocks.
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