Stocks finished in positive territory Tuesday, with the Dow logging a five-day win streak, but off their session highs after Senate Majority Leader Harry Reid threw cold water on the ongoing "fiscal cliff" negotiations.
Reid said it will be hard to reach a budget deal by Christmas, adding that Democrats aren't going to make an offer on spending cuts for Republicans.
The S&P 500 climbed 9.29 points, or 0.65 percent, to finish at 1,427.84. The Nasdaq rallied 35.34 points, or 1.18 percent, to end at 3,022.30. The Dow and the Nasdaq have wiped out their post-election day losses.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, ended below 16.
All key S&P sectors finished in positive territory, led by techs and health care.
Earlier, Speaker John Boehner accused President Obama of dragging his feet on the budget talks, but appeared to remain hopeful that both sides would reach an agreement by year-end.
"We're still waiting for the White House to identify what spending cuts the President is willing to make as part of the 'balanced approach' he promised the American people," said Boehner. "Even if we did what the President wants, we would see red ink for as far as the eye can see—that's not fixing our problem either; it's making it worse and it's hurting our economy."
Apple rallied, recovering from recent losses. Earlier, China's cellphone operator Unicom said it received more than 300,000 pre-orders for the iPhone 5 in the first week. Separately, the company was mentioned positively at Topeka Capital Markets. The firm said Apple's fundamentals remain strong and expects shares to rebound quickly following the latest selloff.
The tech giant has traded lower for seven of the last 10 sessions and erased more than 7 percent in the last month.
Despite the rebound, market technician Tom McClellan, editorof the McClellan Market Report said the top in Apple has already been seen.
"We're getting a nice pop that's right on schedule thisweek, but there's a lot more damage to come next year – it's not going to be agood time for Apple stock," McClellan noted. "Apple as a company is still great–they're still innovating, doing great things, and will be doing business for along time to come."
The Fed kicks off its two-day policy meeting and economists expect the central bank to announce a new round of Treasury securities purchases when the meeting ends on Wednesday. The program would replace its "Operation Twist" stimulus which expires at the end of the year.
"We've been so hyper-focused on fiscal policy, not monetary policy,that the Fed might not even get front page news tomorrow," said Art Hogan, managingdirector at Lazard Capital Markets. "Most of what is expected is already bakedinto the market, so unless they announce something surprising, don't expectmuch of a reaction."
Facebook edged higher after Capstone Research raised its price target on the company to $35 from $26. Separately, the social-networking giant rolled out its Facebook Gifts service to users in the U.S., just in time for the holidays. Gifts now has over 100 retail partners including Starbucks, Chandon Sparking wine and Magnolia Cupcakes. (Read More: Facebook Pushes US to Top of IPO Charts)
Clearwire surged amid news that the company is moving closer to a deal with Sprint, under which Sprint would acquire the roughly 49 percent of the wireless broadband services provider it doesn't already own, sources told CNBC.
Urban Outfitters jumped after the clothing retailer said its fourth-quarter same-store sales were better than what analysts were expecting. In addition, at least two brokerages raised their price target on the company.
Liberty interactive purchased nearly 4.8 million shares of common stock of TripAdvisor from media mogul Barry Diller and The Diller-von Furstenberg Family Foundation, giving the company voting control of the travel website firm. Shares of TripAdvisor jumped to lead the S&P 500 gainers.
Among earnings, Dollar General topped earnings expectations, but handed in a weaker-than-expected outlook as the retailer said it remains cautious amid growing competition, sending shares sharply lower. tx
Texas Instruments slightly improved its earnings target. At least three brokerages raised their price target on the chipmaker.
On the economic front, the U.S. trade gap increased in October, according to the Commerce Department. And wholesale inventories rose more than expected in October to a seasonally adjusted $497.13 billion.
Treasury prices remained lower after the government auctioned $32 billion in 3-year notes at a high yield of 0.327 percent. The bid-to-cover was 3.36.
—By CNBC's JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)
Coming Up This Week:
WEDNESDAY: Weekly mortgage apps, import/export prices, oil inventories, FOMC mtg announcement, 10-yr note auction, FOMC forecasts, Bernanke press conference, 3M 2012 outlook mtg, OPEC mtg; Earnings from Costco
THURSDAY: Jobless claims, PPI, retail sales, business inventories, 30-yr bond auction; Earnings from Hovnanian, Pier 1 Imports, Adobe Systems
FRIDAY: CPI, industrial production, Facebook lockup lifts
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