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U.S. stocks rose, erasing early losses, and commodities pared declines as lawmakers said they are optimistic a budget agreement can be reached to avoid automatic spending cuts and tax increases.

The Standard & Poor’s 500 Index closed up 0.8 percent at 1,409.93 at 4 p.m. in New York after earlier slumping 1 percent. The S&P GSCI gauge of 24 raw materials was down 0.5 percent, trimming an earlier decline of 1.4 percent as oil pared losses following an unexpected decline in U.S. supplies. Ten-year Treasuries pared early gains, with rates down less than one basis point at 1.63 percent, and the Dollar Index reversed an earlier advance to fall 0.1 percent. The Standard & Poor’s 500 Index slipped 0.2 percent as of 11:03 a.m. in New York after earlier slumping as much as 1 percent.

Equities reversed morning declines as Republican House Speaker John Boehner told reporters he is optimistic that budget talks can “avert this crisis sooner rather than later.” President Barack Obama said more Republicans are agreeing on a “balanced approach” to cut the deficit, and he hopes a deal can be reached before Christmas. Obama urged Congress to extend tax cuts for the middle class, while Boehner said he continues to oppose the expiration of tax reductions for top earners and Democrats need to get “serious” on budget cuts. Obama is sending Treasury Secretary Timothy F. Geithner to meet with congressional leaders tomorrow as lawmakers debate ways to avoid the so-called fiscal cliff of more than $600 billion in automatic tax increases and spending cuts that will kick in next year if an agreement is not reached.

The U.S. economy expanded at a “measured pace” in recent weeks as gains in consumer demand and housing were tempered by a slowdown in manufacturing and the impact of superstorm Sandy, the Federal Reserve said. The report indicates the Fed is unlikely to curtail monthly purchases of $40 billion in housing debt and bolsters Chairman Ben S. Bernanke’s view that an agreement on reducing long-term federal budget deficits without abrupt tax increases and spending cuts would remove a barrier to growth. Equities extended losses earlier after Commerce Department data showed purchases of new U.S. homes unexpectedly declined 0.3 percent to a 368,000 annual pace in October, showing limited progress in the housing market recovery.

The Stoxx Europe 600 Index (SXXP) rose 0.1 percent, erasing an earlier loss of as much as 0.6 percent. The yen strengthened 0.3 percent against the euro and 0.3 percent per dollar. Shinzo Abe, the front-runner to become Japan’s next prime minister, and incumbent Yoshihiko Noda debate policies tomorrow before a general election next month. The euro weakened was little changed at $1.2940, trimming an earlier 0.5 percent decline. Italy’s 10-year bonds advanced, pushing the yield down 14 basis points to 4.59 percent, the lowest since May 2011. The rate on similar-maturity Spanish notes slid 19 basis points to 5.33 percent, the lowest on a closing basis since March.           [Bloomberg]

FBM KLCI rebounded yesterday to close above 1,600. while the spot month index futures managed to recover up to 1609.5 after opening at 1594. Today’s Support and Resistance for spot month index futures is located around 1600 and 1623 respectively.