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Futures Turn Sharply Higher Ahead of 'Cliff' Deadline

U.S. stock futures shot higher on the final trading day of the year after Senator Bob Corker expressed some optimism that a budget deal could be reached sometime today as lawmakers in Washington scrambled to strike a last-minute deal to avert the "fiscal cliff."

"The discussions are going very well… I do think there's going to be a resolve to this," said Corker on CNBC. "It's almost irrelevant when it happens, it's going to happen and it's probably going to happen today."

Negotiations are expected to continue between lawmakers and the White House on how to deal with the $600 billion in automatic tax hikes and spending cuts that kick in at the start of January and could drag the economy in recession. The Senate reconvenes at 11 a.m. ET to resume talks with only a few hours left to forge a deal that would also have to be passed by the House of Representatives.

While hope for a broad deal has largely evaporated, the lack of panic on markets shows that investors still expect officials to find a solution to the budget problems early in the New Year. The measures that kick in on Jan. 1 will have only a gradual impact.

While midnight on Monday marks the deadline for a deal, the government can pass legislation in 2013 that retroactively prevents the United States going over the fiscal cliff, an option that is viewed as politically easier.

On Sunday, President Barack Obama, appearing on NBC's "Meet the Press," said investors could begin to show greater concerns in the new year.

Investors have remained relatively sanguine about the process, believing it will eventually be solved. In the past two months markets have not shown the kind of volatility that was present during the fight to raise the debt ceiling in 2011.

Major averages dropped nearly 2 percent across the board last week as skepticism grew on Wall Street over the budget talks. The CBOE Volatility Index rose to its highest level since June on Friday, closing above 22 for the first time since June.

Still, equities have largely performed well in the last two months despite ongoing worries over the fiscal cliff. For the year, the Dow is up nearly 6 percent, while the S&P 500 and the Nasdaq are up more than 10 percent each.

Facebook gained after a BMO Capital analyst, known for bearish comments on the social media company, turned bullish on the stock. BMO upgraded Facebook shares to "buy" from "sell" and raised the stock's price target to $32 from $15.

European markets were slightly lower, although trading was muted as markets in Germany, Switzerland, Italy, Denmark, Norway, and Sweden were closed while UK, French, Dutch and Spanish markets were only open for half a session.

—By CNBC's JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)

Coming Up This Week:

MONDAY: Dallas Fed mfg survey, farm prices, 'fiscal cliff' deadline
TUESDAY: New Year's Day -- Markets Closed
WEDNESDAY: Weekly mortgage applications, PMI manufacturing index, ISM mfg index, construction spending
THURSDAY: Challenger job-cut report, ADP employment report, jobless claims, FOMC minutes, Fed balance sheet/money supply, chain store sales, auto sales; Earnings from Family Dollar
FRIDAY: Employment situation, factory orders, ISM non-mfg index, oil inventories, Fed's Yellen speaks; Earnings from Mosaic

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