Mixed results over tax compromise

US stocks were mixed 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 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 US economy and are already raising their estimates for economic growth next year.

Stocks had edged higher after a report from the Labour 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 a day after setting a closing high for 2010. The index rose 4.72, or 0.4%, to 1,233. It was the second straight day that the S&P index reached a new high for the year.

The Dow Jones industrial average fell 2.42, or less than 0.1%, to 11,370.06. The Nasdaq composite index rose 7.51, or 0.3%, to 2,616.67. Bank of America was the strongest performer among the 30 companies that make up the Dow. It rose up 5.4%. The index’s laggard was McDonald’s, which lost 1.1%.