By Greg Peel

The Dow closed up 78 points, or 0.6%, while the S&P gained 0.7% to 1427 and the Nasdaq added 1.2%, aided by a 2% gain for Apple.

I suggested yesterday that Wall Street would probably see a quiet session last night as the Fed meets to determine just what it will do with Operation Twist in the New Year. Over 80% of respondents to a CNBC survey expect the Fed to announce tomorrow night that the Twist will be replaced by open security purchases, which will no doubt be dubbed QE4.

If this is true, it should be positive, or at least supportive, for the stock market. However, it was never likely Wall Street would get too carried away before the statement's release. By late morning the Dow was up 136 points, but the move was not particularly related to the Fed. It was all to do with Cliff, and that marks a break from the recent trend of ignoring to-and-fro political rhetoric.

The market was buoyed by an article in the Wall Street Journal suggesting that despite the apparent public stand-off, behind the scenes Cliff negotiations are actually progressing. This is more like "real" news given Wall Street had become tired of responding to every little spin-laden throwaway line from politicians inside or outside the inner sanctum. Wall Street has remained largely confident a compromise can be reached before New Year, if not before Christmas, and hence the indices have been grafting northward. The morning's boost returned the S&P 500 to its pre-election level.

But just when traders thought they would be able to enjoy their turkey without lingering worries, out came the Democrat senate leader Harry Reid to play Grinch. Reid was indignant at the Republicans' request for the Democrats ? the ones' in government ? to present a proposal of spending cuts for their consideration. Hence we're straight back to political posturing, with each side trying to claim the senior status. Reid angrily suggested a deal was unlikely before Christmas.

At 3.30pm the Dow had pulled back to be up only 52 points. But despite clear signs of many investors selling their year's "winners" these past weeks in order to avoid any capital gains tax hike Cliff might bring, Wall Street fought back to the close, and specifically closed that gap to the election tipping point. Indeed, the Dow closed at 13,248 ? the exact price it closed on election day. Traders remain optimistic that if a resolution is not reached by Christmas, it will at least be reached by New Year's ? probably just in time for the apple to drop in Times Square.

Faith is a wonderful thing.

The only other news of note overnight was a surprisingly positive result for the monthly German ZEW investor sentiment index, which helped the German stock market up 0.8%. Notably, while Wall Street's recent strength seems at odds with Cliff potential, European stock markets have proven even more buoyant of late despite all that is wrong on the Continent.

The US dollar index slipped 0.3% to 80.06 last night as traders position ahead of a possible QE4 announcement tonight. This didn't help gold, which was a tick lower at US$1710.10/oz, but it did help the Aussie breach stiff resistance at the 1.05 mark. Yesterday's dour NAB business confidence survey ? the least confident since the GFC ? was attributed among other things to the relentlessly strong Aussie, which over 24 hours is up 0.4% to US$1.0525.

Base metals posted solid gains on Monday night so last night saw slight pullbacks of little note, while the oils have now gone really quiet, with Brent edging up US68c to US$108.01/bbl and West Texas US23c to US$85.79/bbl.

The big mover over the past few days has been Chinese spot iron ore, which has a rather ominous short-squeeze feel about it in rising another US$1.50 to US$124.90/t. It seems like only yesterday iron ore was under 90.

The SPI Overnight was up 16 points or 0.4%.

Westpac will release its monthly consumer confidence report today and tonight we see the release of the Fed statement on monetary policy, along with a quarterly update for Fed forecasts and a press conference from Ben Bernanke.

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