U.S. stocks climbed Tuesday, lifting the Standard & Poor's 500 stock index to highs not seen since September 2008, as investors applauded an agreement between President Barack Obama and Republican leaders in Congress that would extend the Bush era income tax cuts for two years.

The S&P 500 index rose 0.7% to 1232 recently after hitting 1235.05, its highest intraday level since Sept. 22, 2008.

The industrial sector led the measure's broad climb.

The Dow Jones Industrial Average rose 64 points, or 0.6%, to 11427.

The measure came within close reach of its September 2008 highs.

It hit an intraday high of 11450.89, just shy of the 11451.53 hit Nov. 5 that the Dow will need to surpass to reach its September 2008 highs.

General Electric led the Dow's gains with a 3.1% increase.

Caterpillar was also strong, rising 2.6%.

Just a few of the Dow's 30 components fell, led by a 2.9% decrease in 3M.

Disappointing investors, the manufacturing giant forecast organic sales growth for 2011 slightly below the company's long term goal.

The Nasdaq Composite added 0.8% to 2617 and earlier hit 2623.60, its highest intraday point since January 2008.

Meanwhile, the Russell 2000 index of small capitalization stocks often viewed as a measure of the market's appetite for risk--climbed 1.1% to 770.

The broad advance followed a deal between Obama and Republican leaders on a tax package that would extend the Bush era income tax cuts for two years, reduce payroll taxes for one year, and give more favorable treatment to business investments.

The estate tax will be temporarily reinstated at 35%, and jobless benefits for the long term unemployed will be extended.

However, the proposed deal is already catching plenty of criticism within the Democratic party.

House Majority Leader Steny Hoyer (D., Md.) criticized the extension of tax cuts for top earners, while House Speaker Nancy Pelosi (D., Calif.) said the estate tax proposal would help only 39,000 of America's richest families, while adding about $25 billion more to the deficit.

European Markets

European stock markets rallied Tuesday, hitting multi-year highs as a U.S. deal to extend tax cuts and hopes that the Irish parliament will approve a tough new budget buoyed sentiment.

The Stoxx Europe 600 index closed up 0.9% to 273.90.

The index hit 275.21 earlier in the session, its highest level since September 2008.

The gains came after a U.S. deal to extend Bush-era tax cuts helped offset worries over the possibility that China may increase interest rates.

Sentiment was also buoyed by expectations that Ireland's parliament is likely to approve a tough new budget after an independent lawmaker agreed to support the government.

Dublin's ISEQ index was one of the strongest performers in the region, rising 1.7% to 2,797.88.

Germany's DAX 30 index climbed above 7,000 for the first time since June 2008.

The index finished up 0.7% at 7,001.91.

Among the continent's other main markets, the U.K. FTSE 100 gained 0.7% to 5,808.45 and the French CAC 40 climbed 1.6% to 3,810.50, though both remained below peaks hit earlier in 2010.

Bank stocks traded mostly higher, with Lloyds Banking Group PLC up 0.9% and BNP Paribas up 2.3%.

Irish banking stocks also rose strongly, with Allied Irish Banks up nearly 19%.

But Spain's Banco Santander and BBVA underperformed, slipping 0.9% and 0.2%, respectively, after German Chancellor Angela Merkel Monday dismissed calls to increase the size of the European Union's bailout fund or create European sovereign bonds.

Asian Markets

Asian markets ended mostly higher Tuesday, with China stocks retracing sharp early losses despite fresh tightening concerns, and Australian shares gaining after the Reserve Bank of Australia held rates steady and U.S. President Barack Obama agreed to an extension of tax breaks.

China's Shanghai Composite Index ended up 0.7%, Hong Kong's Hang Seng Index added 0.8%, and South Korea's Kospi climbed 0.5%.

Japan's Nikkei Stock Average fell 0.3%.

The Shanghai index fell as much as 1.7% in the morning after the state run China Securities Journal said China's central bank could raise interest rates over the coming weekend ahead of the release of last month's economic data, which will include consumer price index figures.

But the market rebounded in the afternoon, with the Hong Kong market tracking the mainland's rise, led by gains in metal companies as commodity prices rebounded after the dollar fell against other major currencies.

Jiangxi Copper's Shanghai and Hong Kong shares each rose 2.4%, while Zijin Mining's Hong Kong shares added 4.1% and its Shanghai ones tacked on 5.1%.

Tokyo stocks fell as a stronger yen hurt exporters and as investors were cautious ahead of the Irish parliament's vote on the 2011 budget later in the global trading day.

Honda shed 1.9%, Canon fell 0.4% and Nikon lost 1.0%.

Base Metals

Base metals closed mostly higher on the London Metal Exchange Tuesday, despite paring earlier gains as the euro fell against the dollar.

Concerns that further monetary tightening in China could ease demand for industrial metals have also been rekindled, putting downward pressure on the markets.

LME three month copper Tuesday hit a new record and intraday high of $9,044 a metric ton, before sliding back to finish at $8,880/ton.

Nevertheless, many analysts are tipping sustained price increases in the days ahead, supported by strong fundamentals and technical indicators for several of the metals.

Oil futures retreated after touching a two year high above $90 a barrel Tuesday, as traders pulled back from the key price threshold following last week's strong run.

Light, sweet crude oil for January delivery settled 69 cents lower at $88.69 a barrel on the New York Mercantile Exchange.

Gold futures were unable to hold onto early gains, ending lower as investors cashed in on a record setting rally.

However, futures ended above the key $1,400 a troy ounce level, an indication that traders remain concerned about inflation.

The most actively traded contract, for February delivery, settled down $7.10, or 0.5%, at $1,409 a troy ounce on the Comex division of the New York Mercantile Exchange.

Futures had peaked at $1,432.50 an ounce, a record

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