US STOCKS-S&P 500 hits 2-year high after tax cut deal

                                

                                
 * Deal to extend tax cuts boosts stocks, but not done deal
                                
 * S&P 500 rises to two-year high
                                
 * Retailer Talbots falls after forecast
                                
 * Indexes up: Dow 0.4 pct, S&P 0.5 pct, Nasdaq 0.6 pct
                                
 * For up-to-the-minute market news see [STXNEWS/US]
  (Updates to early afternoon)
                                
 By Edward Krudy
                                
 NEW YORK, Dec 7 (Reuters) - The S&P 500 climbed to a fresh
two-year intraday high on Tuesday as investors bet a deal to
extend tax breaks will prompt increased spending and buoy the
economy while preserving returns for shareholders.
                                
 However, stocks eased off session highs as several
high-ranking Democrats gave a lukewarm reception to the deal,
which still needs the backing of Congress to become law.
                                
 "It has become clear today that some of the more strident
voices on the left are unwilling to make certain compromises
necessary to get this passed," said Peter Kenny, managing
director at Knight Equity Markets in Jersey City, New Jersey.
                                
 Investors said tax cuts are necessary to keep the fragile
recovery on track and could lead to more spending and
investing. Increasing capital gains and dividends taxes would
hurt shareholder returns.
                                
 The Dow Jones select dividend index <.DJDVY>, which
measures the performance of top dividend-paying companies, rose
0.7 percent. AT&T Inc, which has a dividend yield of 5.9
percent, according to Reuters data, rose 1.2 percent. The deal
was expected to extend breaks on dividends and capital gains.
                                
 The Dow Jones industrial average <.DJI> gained 44.76
points, or 0.39 percent, to 11,406.95. The Standard & Poor's
500 Index <.SPX> rose 6.17 points, or 0.50 percent, to
1,229.29. The Nasdaq Composite Index <.IXIC> added 15.98
points, or 0.62 percent, to 2,610.90.
                                
 U.S. President Barack Obama forged the deal with
Republicans to renew Bush-era tax cuts for wealthier Americans
as well as the middle class. For details, see [ID:nN06211347]
                                
 Optimism over the agreement sent the S&P 500 to a new
two-year high. But the index fluctuated at around the 61.8
percent Fibonacci retracement of the 2007-2009 bear market
slide, a technical level closely followed by traders.
                                
 U.S. House of Representatives Majority Leader Steny Hoyer
said he was undecided on whether to back the deal, while House
Speaker Nancy Pelosi said talks with the president were
continuing.
                                
 "There should be no hesitation on the part of the market
that from an investor's perspective, tax cuts are always an
unambiguously good thing," said Kevin Caron, market strategist
at Stifel, Nicolaus & Co in Florham Park, New Jersey.
                                
 "I would just hope it passes. I think the likelihood is
that it will ... maybe 75 percent probability that it will,"
said Martin Sass, veteran money manager and founder of M.D.
Sass, a $7.5 billion firm based in New York. He spoke at the
Reuters 2011 Investment Outlook Summit.
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  (For other news from the Reuters 2011 Investment Outlook
Summit, click
http://www.reuters.com/summit/InvestmentOutlookDec10)
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 The U.S. government sold its remaining stake in Citigroup
Inc <C.N>, a move that could lift the S&P 500 as the company
moves to a 100 percent float, according to Credit Suisse.
                                
 Credit Suisse estimated that portfolios following the S&P
may need to buy up to 375 million Citigroup shares, although
the timing of the purchases was uncertain. Citigroup rose 3.7
percent to $4.62.
                                
 Many top dividend-rich shares outperformed the wider
market, with Chevron Corp <CVX.N> up 1.3 percent to $86.06 and
AT&T Inc <T.N> adding 1.1 percent to $28.60.
                                
 Some investors feared a higher tax on dividends could
reduce the attractiveness of such stocks compared to
fixed-income assets, while higher capital gains could spur
equity selling at the end of the year to take advantage of the
better rate.
                                
 3M Co <MMM.N> shares fell 2.9 percent to $84.37. The Dow
component forecast 2011 profit that could top expectations but
issued an outlook for sales growth that was lower than some
analysts expected.
                                
 In other corporate news, natural gas distributor Nicor Inc
<GAS.N> climbed 5 percent to $49.09 after rival AGL Resources
Inc <AGL.N> agreed to buy it. AGL shed 4.7 percent to $35.37.
[ID:nSGE6B608J]
                                
 Women's clothing retailer Talbots Inc <TLB.N> said it might
report a fourth-quarter loss from continuing operations and
that holiday sales could fall, sending its shares down 20
percent to $9.10. [ID:nN07265459]
  (Reporting by Edward Krudy; additional reporting by Chuck
Mikolajczak; editing by Jeffrey Benkoe)