Lawmakers kept Wall Street on its toes Wednesday as investors waited for signs of progress on the "fiscal cliff."
Stocks shrugged off an early loss and were higher in early afternoon trading. As of 1:31 p.m. the Dow Jones industrial average was up 70 points at 12,948. It had been down as much as 112 points shortly after the opening bell.
The Standard and Poor's 500 was up four points to 1,403. The Nasdaq composite was up nine points at 2,977.
Huge tax increases and spending cuts will come into effect Jan. 1 if no deal is reached. Economists say the measures could push the U.S. back into recession. President Barack Obama said he believed that both parties can reach a "framework" on a debt-cutting deal before Christmas.
"We're all on pins and needles waiting for every bit of news, or rumors, coming out of Washington," said Ryan Detrick, a Cincinnati, Ohio-based technical analyst at Schaeffer's Investment Research. "That's what's Wall Street is focused on. Everybody is watching the fiscal cliff."
Concern that the U.S. will go over the fiscal "cliff" has weighed on stocks since the Nov. 6 elections returned a divided government to power, with President Barack Obama staying in the White House and Republicans retaining control of the House.
Lawmakers realize that there is too much at stake to allow the deadline to pass without reaching a deal, said Craig Johnson, a Minneapolis, Minn.-based technical market strategist at Piper Jaffray.
"I don't think that anybody in Washington is going to do something so draconian, or so negative, that we're going to trigger a recession," Johnson said. "There will be some compromise."
Uncertainty about possible higher taxes for capital gains are prompting investors to consider selling stocks, said Johnson.
Many companies are making special end-of-year dividend payments or moving up their quarterly payouts because investors will have to pay higher taxes on dividend income starting in 2013, unless lawmakers reach a compromise on taxes and government spending.
Costco, the wholesale club operator, surged $4.50 to $101 after the company said that it would pay a special dividend of $7 a share next month, in addition to the regular quarterly dividend it pays shareholders. Las Vegas Sands Corp. rose Tuesday after the casino operator said it would distribute about $2.26 billion to shareholders before the end of the year.
In economic news Wednesday, U.S. sales of new homes dipped 0.3 percent in October though remain up 20.4 percent for the year, according to a government report. Stable home prices suggest the housing market is steadily recovering.
The yield on the 10-year Treasury note fell to 1.62 percent from 1.64 percent.
Among stocks making big moves:
-- Chipmaker Analog Devices fell 37 cents to $39.74 after it said sales fell 3 percent in the third quarter due to weak economic conditions and global uncertainty.
-- Green Mountain Coffee Roasters surged $7.17 to $36.13 after the beleaguered coffee company reported fourth-quarter results and guidance that far exceeded the market's expectations.
--Fresh Market Inc. plunged $7.61 to $52.62, after the company's fiscal third-quarter profit fell short of analysts' expectations.