North American stock markets were in rally mode Monday as traders feel that cool heads will prevail and American politicians can come together to agree on a budget deal by the end of next month.
Without such a deal, the U.S. risks going over a so-called fiscal cliff and into recession as the economy would suffer a severe shock from a combination of automatic spending cuts and the expiration of Bush-era tax cuts.
The S&P/TSX composite index jumped 162.68 points to 12,040.4, while the TSX Venture Exchange gained 14.62 points to 1,249.96.
The Canadian dollar closed up 0.44¢ to US100.34¢.
U.S. indexes surged with the Dow Jones industrials running up 207.65 points to 12,795.96, the Nasdaq climbed 62.94 points to 2,916.07 and the S&P 500 index was ahead 27.01 points to 1,386.89.
Fiscal cliff concerns started to ease Friday afternoon following a meeting between congressional leaders and U.S. President Barack Obama, with both Republicans and Democrats striking a more conciliatory stance.
And on Sunday, Obama said: "I am confident we can get our fiscal situation dealt with."
While there is still room for plenty of disappointment in resolving this potential crisis, markets were on the lookout for anything positive out of the negotiations.
But analysts said more than just reassuring words will be needed.
"Rhetoric only goes so far and so the market will now need to wait," said Paul Taylor, chief investment officer, BMO Harris Private Banking.
"This is a pretty slow week with U.S. Thanksgiving so it's more a question of what's the timeline, how long will it take for the story to be [written] on this current episode ... If we don't get it right, that will be very poor for markets."
Markets finished postitive on Friday but prior to that, the TSX had tumbled 3.9% since the election Nov. 6 as a U.S. economic shock would impact economies around the world. A sudden slowing of economic growth would be bad news for a resource-heavy market like Toronto, since a lessening of demand for oil and metals would put pressure on mining and energy stocks.
Meanwhile, the Dow industrial average has fallen 5% as investors worry about higher dividend, capital gains and payroll taxes.
On the TSX, the telecom sector was in focus after BCE Inc. and Astral Media Inc. said they are submitting a new acquisition proposal to the CRTC, saying they've found ways to address the regulator's concerns over the level of ownership concentration in some markets.
