Little hope of avoiding 'cliff'

Starbucks is urging United States lawmakers to reach a deal. Photo by Reuters.
Starbucks is urging United States lawmakers to reach a deal. Photo by Reuters.
Only a small glimmer of hope remains that the United States economy will not topple over the so-called ''fiscal cliff'' in the early hours of January 1.

The House of Representatives said it would come back to work on Sunday, US time, to work on avoiding the fiscal cliff. That was seen as the barest sign of progress, but enough for US stocks to recover most of their losses from earlier in the day.

Senate Majority Harry Reid warned a deal was unlikely before the deadline, causing US sharemarkets to fall 1% only to rebound, merely on the news that the House would reconvene a day before the ''cliff'' deadline.

The market has been prone to quick reactions to headlines and those moves have sometimes seemed more dramatic because of reduced trading volume. Investors are looking for any hint that lawmakers will avert the $US600 billion ($NZ732 billion) in tax hikes and spending cuts that will start to take effect next week and could push the US economy into recession.

Adding to the tension, Treasury Secretary Timothy Geithner formally notified Congress that the Government would hit its statutory borrowing limit on Tuesday, raising anew the threat of a federal default.

Mr Geithner announced the first of a series of measures that should push back the date when the US Government would hit its legal borrowing authority - a limit known as the debt ceiling - by about two months. But he warned he did not know how long the Treasury could shuffle accounts before the Government could no longer pay its creditors.

In a sign of the anxiety, the Chicago Board Options Exchange Volatility Index, or VIX, rose above 20 for the first time since July, suggesting rising worries, but finished the day down 0.4% as the stock market rebounded.

The four-day decline marked the S&P 500's longest losing streak in three months. The index has lost 1.8% over the period as investors grapple with the possibility that a deal may not be reached until next year.

President Barack Obama arrived back in Washington from Hawaii to restart stalled negotiations with Congress. House Speaker John Boehner and other Republican leaders were to hold a conference call with Republican lawmakers. The expectation was that lawmakers would be told to get back to Washington quickly if the Senate passed a Bill.

The Republicans are wearing the heat of most of the criticism in the failure to do a deal but the right wing representatives of the party appear more frightened of the Tea Party in their home districts than the thought of another recession.

Economic data seemed to confirm worries about the impact of the fiscal cliff on the economy.

The Conference Board, an industry group, said its index of consumer confidence in December fell to 65.1 as the budget crisis dented growing optimism about the economy. The gauge fell more than expected from 71.5 in November.

The job market continues to mend. Initial claims for unemployment benefits dropped 12,000 to a seasonally adjusted 350,000 last week and the four-week moving average fell to the lowest since March 2008.

Starbucks Corp plans using its ubiquitous coffee cups to tell US lawmakers to come to a deal to avoid going over the fiscal cliff.

Chief executive Howard Schultz is urging workers in Starbucks' 120-odd Washington area shops to write ''come together'' on customers' cups as President Obama and lawmakers return to work.

Whether members of Congress actually drink in the message is another matter. While the concentration of Starbucks cafes is high close to the White House, it is relatively low near the US Capitol. Members of the House and Senate enjoy private dining facilities and many of their offices have coffee machines.

Mr Schultz said he had joined a growing list of high-powered business leaders, politicians and financial experts in endorsing the Campaign to Fix the Debt (, a well-funded non-partisan group that is leaning on lawmakers to put the US economy in order.

• House to meet Sunday (Monday, NZ time); Senate leader does not see deal
• Consumer confidence hits four-month low on cliff fears
• If a deal is not reached, $US600 billion of tax hikes and spending cuts start on January 1
• Dow, S&P 500 and Nasdaq all slip 0.1%

- Additional reporting Reuters

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