US stocks up

Wall Street put together a moderate advance in light trading today after the finance arm of General Motors won a government lifeline, but dreary Christmas spending figures dashed the chance of a big year-end rally.

Not surprisingly, Americans spent much less on gifts this season than they did last year, according to SpendingPulse, a division of MasterCard Advisors.

Retail sales dropped between 5.5% and 8% compared with last year, the figures showed, or between 2% and 4% after stripping out car and oil sales.

Personal consumption is a huge part of US economic activity, comprising more than two-thirds of gross domestic product, so Wall Street is nervous that a more frugal consumer could keep the economy weak in 2009.

Investors did get a some good news on Christmas Eve, when the Federal Reserve allowed GMAC Financial Services – the finance arm of struggling Detroit carmaker General Motors – to become a bank holding company and thus qualify for the government’s 700bn (€500bn) rescue fund. Analysts had said that without financial help, GMAC might have had to file for bankruptcy protection or shut down.

There was little conviction behind the Wall Street advance, which the market managed after stocks meandered for much of the session.

With just three full trading days left in the year, no news has been upbeat enough to spark a big year-end rally, a consequence of the great uncertainty still in the market.

December is usually a strong month for stocks, and a flurry of trading known as a “Santa Claus rally” is often seen in the final week.

“I think we could have a year-end rally, but it’s got a formidable headwind in the form of tax-selling, in my view,” said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors.

Tax-loss selling is when investors sell their poorly performing stocks to realise a loss for the year, which can reduce their taxes in coming years.

The Dow Jones industrial average rose 47.07, or 0.56%, to close at 8,515.55.

Broader stock indicators also rose. The Standard & Poor’s 500 index rose 4.65, or 0.54%, to 872.80, and the Nasdaq composite index rose 5.34, or 0.35%, to 1,530.24.

The Russell 2000 index of smaller companies rose 6.28, or 1.33%, to 476.77.