Dow ends mixed as tax compromise stalls in House

NEW YORK – Stocks closed mixed Thursday as traders waited to see whether a tax compromise brokered by the White House and Republicans will pass the Democratic-controlled House.

House Democrats pledged Thursday to reject the tax deal as it is currently written. The compromise reached by President Barack Obama and Republican leaders would extend tax cuts at all income levels for two years. House Democrats want tax rates for the wealthiest Americans to revert to their previous levels.

“There is a tremendous amount of uncertainty about some major tax planning and estate planning issues,” said Eric Thorne, a vice president at Bryn Mawr Trust. “We think that the market will rally nicely once an agreement is passed one way or another.”

The White House has been pushing Democrats to back the tax measure, arguing that a defeat could knock the economy back into recession. The deal also contains a provision extending unemployment benefits.

Economists expect the tax package to boost the U.S. economy and are already raising their estimates for economic growth next year. Goldman Sachs’s rough estimate is that the tax proposal could add between 0.5 and one percentage point to economic growth in 2011. A stronger economy diminishes the appeal of ultra-safe investments like Treasurys and raises the prospect of higher inflation.

Stocks had edged higher in the morning after a report from the Labor Department showed that first time claims for unemployment benefits dropped last week to the second-lowest level this year. Claims fell to 421,000, below the 428,000 figure that Wall Street expected.

The four-week average of claims also slid for the fifth straight week, reaching the lowest level since August 2008, before the darkest days of the financial crisis.

The Standard & Poor’s 500 index inched higher. The index rose 4.72, or 0.4 percent, to 1,233. It was the second straight day that the S&P index reached a new high for the year.