Fiscal cliff fight dampens gains on Wall Street

US stocks sold off late in the day to close at session lows yesterday as talks to avert a year-end fiscal crisis turned sour, even as investors still expect a deal.

The S&P 500 slipped after a two-day rally that took the benchmark index to its highest close in two months. Defensive-oriented shares led the decliners, including health care and consumer staples.

General Motors bucked the overall weakness to surge 6.6 per cent to $27.18 after the carmaker said it will buy back 200m of its shares from the US Treasury, which plans to sell the rest of its GM stake.

President Barack Obama and congressional Republicans are struggling to come up with a deal to avoid early 2013 tax hikes and spending cuts that could send the US economy into recession.

House Speaker John Boehner, the top Republican in Congress, said his chamber will pass a proposal that Obama had already threatened to veto as it spares many wealthy Americans from tax hikes needed to balance the budget.

Banks and energy shares – groups that outperform during periods of economic expansion – have led recent gains, indicating a shift to focusing on the economy as Wall Street looks past the budget talks.

Defensive sectors led yesterday’s downturn, with the S&P health care sector index down 1.1 per cent.

The Dow Jones industrial average dropped 98.99 points, or 0.74 per cent, to 13,251.97.

The S&P 500 lost 10.98 points, or 0.76 per cent, to 1,435.81.

The Nasdaq Composite fell 10.17 points, or 0.33 per cent, to 3,044.36.