Dow ends flat as rally over tax cuts fade

NEW YORK (AP) — Stocks closed mixed after enthusiasm over a deal to extend tax cuts faded.

Bond prices fell sharply as traders anticipated the tax cuts would lead to ballooning budget deficits. The yield on the 10-year Treasury note jumped to 3.13 percent, its highest level since June 22.

President Barack Obama and Republican leaders agreed to a broad package of tax cuts and an extension of unemployment benefits. The compromise plan helped send stocks higher in the morning. The extension of the Bush-era tax cuts, which were due to expire at the end of the year, removed a major source of uncertainty for financial markets. The deal announced late Monday also included a one-year break on payroll taxes which will put money directly in Americans’ pockets. The same is true for the extension of unemployment benefits, which economists see as an effective way to stimulate the economy by getting people spending again.

“The deal in Washington is a big deal,” said Kim Caughey Forrest, equity research analyst at Fort Pitt Capital Group. “Investors really do like certainty, and they really do like certainty around taxes.”

The Dow Jones industrial average fell three, or 0.03 percent, to close at 11,359.16. It had been up as many as 89 points before turning lower in the afternoon.

The broader Standard & Poor’s 500 index rose 0.6, or 0.05 percent, to 1,223.75. The S&P closed within two points of its 2010 high reached on Nov. 5.

The Nasdaq composite index rose 3.6, or 0.1 percent, to 2,598.49.

Treasury prices fell sharply, sending their yields higher. The yield on the 10-year Treasury note rose to 3.13 percent from 2.93 percent late Monday. The yield on the 10-year note is a widely used benchmark for interest rates on loans including mortgages.

Citigroup Inc. rose 3.8 percent to $4.62 after the government said late Monday it reached a deal to sell its remaining stake in the bank for a $12 billion profit. Nicor Inc. jumped 4.3 percent to $48.79 after the natural gas distributor said it had agreed to be acquired by AGL Resources Inc. for about $2.38 billion in cash and stock.