Fiscal cliff worries temper markets

The Toronto stock market closed higher after two days of losses amid worries about the knock-on effects from the U.S. economy going over the so-called fiscal cliff.

The S&P/TSX composite index climbed 5.75 points to 12,196.80 while the TSX Venture Exchange added 2.24 points to 1,300.92.

The fiscal cliff label refers to a string of tax increases and steep spending cuts aimed at cutting the deficit which are set to take effect at the first of the year.

If they are allowed to take full effect, the cuts and tax increases will total about at least half a trillion dollars and take a big chunk out of GDP, in 2013.

Failure to come up with a compromise would likely tip the U.S. back into recession and drag down other economies with it.

“I think now all focus, all emphasis, all the world is watching, is fiscal cliff, said Sadiq Adatia, chief investment officer at Sun Life Global Investment.

“And how the U.S. is going to deal with this fiscal cliff will determine how everything goes. And there will be no new money going in (the markets) until (traders) see some sort of resolution there.”

Bank of Canada governor Mark Carney says the fiscal cliff is the most imminent threat facing the Canadian economy.

Traders found little comfort from an early afternoon announcement by President Barack Obama that he is inviting congressional and business leaders to a meeting next week for talks aimed at finding a compromise.

But he made it clear that spending cuts must be combined with new revenue, adding he would not accept any approach that isn’t balanced and does not include the wealthy paying more taxes.

Republicans say raising tax rates on the wealthiest Americans is a non-starter.

The Canadian dollar was down US0.09¢ at US99.87¢.

The loonie has lost almost nine-tenths of a cent over the past two sessions as worries about the fiscal cliff pushed investors to the perceived safe haven of U.S. Treasuries.

New York indexes were mostly little changed after registering their worst declines of the year over the last two sessions as investors worry that taxes on capital gains and dividends could rise substantially after the first of the year.

The Dow Jones industrials were up 4.07 points to 12,815.39.

The Nasdaq rose 9.29 points to 2,904.87 and the S&P 500 index gained 2.34 points to 1,379.85.

The TSX ended the week down 183.61 points or 1.48% while the Dow fell 277.77 points or 2.12%.