Wall Street flat, awaits movement on fiscal cliff talks

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By Rodrigo Campos | December 5, 2012 2:35 AM EST

Stocks were little changed in early trading on Tuesday as the market remains hostage to negotiations in Washington on how to avert a "fiscal cliff" that could push the U.S. economy into recession.

Republicans in Congress proposed steep spending cuts to bring down the budget deficit on Monday but gave no ground on President Barack Obama's call to raise taxes on the wealthiest Americans, and the proposal was quickly dismissed by the White House.

Headlines about the back-and-forth preliminary proposals by Republicans and Democrats have fixated the market. Still, many investors expect the two sides to come up with a deal before the year-end deadline, which could trigger a rally in equities.

"Support (for the market) is based on a belief that Washington will come to some agreement before we go over the fiscal cliff," said Art Hogan, managing director of Lazard Capital Markets in New York.

Hogan added, "On the first show of flexibility from either side, we'll get a relief rally."

Despite sudden moves in the market on the latest headlines about the fiscal cliff in recent days, a measure of investor anxiety has held surprisingly flat.

The CBOE volatility index <.VIX>, a gauge of market anxiety, slipped to 16 and has not traded above 20 since July following its 2012 high near 28 hit in June. The VIX's 10-day Average True Range, an internal volatility measure, is at its lowest since early 2007.

Obama will meet with U.S. governors at the White House on Tuesday to talk about the fiscal cliff, a $600 billion package of tax hikes and federal spending cuts that would begin January 1.

The president is also expected to talk about the fiscal cliff during an interview scheduled for 12:30 p.m. (1730 GMT) on Bloomberg TV.

Coach became the latest company to advance the date of its next dividend payment. Expectations of higher taxes on dividends kicking in in 2013 have pushed many companies to pay special dividends this year or advance their next pay-back to investors.

The Dow Jones industrial average <.DJI> rose 27.92 points, or 0.22 percent, to 12,993.52. The S&P 500 <.SPX> edged up 0.44 points, or 0.03 percent, to 1,409.90. The Nasdaq Composite <.IXIC> fell 4.44 points, or 0.15 percent, to 2,997.76.

Toll Brothers shares rose 1.8 percent to $33.01 after the largest U.S. luxury homebuilder reported a higher quarterly profit and said new orders rose sharply.

MetroPCS Communications shares dropped 6.5 percent to $10.07 after Sprint Nextel appeared unlikely to make a counter-offer for the wireless service provider.

Shares of Pep Boys-Manny Moe and Jack were down 12.4 percent at $9.36 a day after the release of the auto parts retailer's results.

(Reporting by Rodrigo Campos; Editing by Kenneth Barry)

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