Stocks bounced to trade near session highs in choppy trading Monday as lawmakers in Washington scrambled to strike a last-minute deal to avert the "fiscal cliff."
President Obama is expected to make a statement at the White House regarding the fiscal cliff at 1:30 pm ET.
The Dow Jones Industrial Average rose, after falling for the fifth-straight session on Friday. Caterpillar led the blue-chip gainers, while McDonald's sagged.
The S&P 500 and the Nasdaq were also higher. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded below 21.
Among key S&P sectors, materials and techs rallied, while consumer staples declined.
Major averages dropped nearly 2 percent across the board last week as skepticism grew on Wall Street over the budget talks. The CBOE Volatility Index rose to its highest level since June on Friday, closing above 22 for the first time since June.
Still, equities have largely performed well in the last two months despite ongoing worries over the fiscal cliff. For the year, the Dow is up nearly 6 percent, while the S&P 500 and the Nasdaq are up more than 10 percent each.
"We had very thin trade last week and we're operating at about 40 parent of our normal volume," said Todd Horwitz, chief strategist at Adam Mesh Trading Group. "[Lawmakers in Washington] are going to get a deal done and the market's telling you that we're in a consolidation period between 1,370 to 1,440 [on the S&P 500]…I don't look at this as other than a trading range."
Negotiations are expected to continue between lawmakers and the White House on how to deal with the $600 billion in automatic tax hikes and spending cuts that kick in at the start of January and could drag the economy in recession. The Senate reconvened to resume talks with only a few hours left to forge a deal that would also have to be passed by the House of Representatives.
"The discussions are going very well…I do think there's going to be a resolve to this," said Senator Bob Corker on CNBC. "It's almost irrelevant when it happens—it's going to happen and it's probably going to happen today."
On Sunday, President Barack Obama, appearing on NBC's "Meet the Press," said investors could begin to show greater concerns in the new year.
While midnight on Monday marks the deadline for a deal, the government can pass legislation in 2013 that retroactively prevents the United States going over the fiscal cliff, an option that is viewed as politically easier. Investors have remained relatively sanguine about the process, believing it will eventually be solved. In the past two months markets have not shown the kind of volatility that was present during the fight to raise the debt ceiling in 2011.
Facebook rallied after BMO Capital, known for bearish comments on the social-networking company, turned bullish on the stock. BMO upgraded the stock to "buy" from "sell" and boosted the price target to $32 from $15.
Apple jumped the lead the Nasdaq 100 gainers. Despite a rocky quarter, the iPhone maker is still on track to closing up nearly 30 percent for the year.
Coal and iron-ore producer Cliffs Natural jumped to lead the S&P 500 gainers, lifted by a robust Chinese manufacturing report.
Duff & Phelps surged after the investment-banking company agreed to be bought by private-equity firm Carlyle Group for about $665 million.
European markets ended narrowly mixed in a shortened session, although trading was muted as markets in Germany, Switzerland, Italy, Denmark, Norway, and Sweden were closed.