Wall Street starts 2013 with a rally on "cliff" agreement

Stocks soared on the first day of trading in 2013, after Washington lawmakers cut a last-minute deal to avoid automatic tax hikes that threatened to pinch economic growth.

The rally was broad-based, with 10 stocks rising for every one falling on the New York Stock Exchange. All 10 S&P 500 industry sector indexes rose at least 1 percent, led by the S&P information technology index , up 2.2 percent.

Among the strongest names in the sector was Hewlett-Packard , which rose 5.3 percent to $15 after a miserable 2012 when the stock fell nearly 45 percent.

Congress passed a bill to raise taxes on wealthy individuals and families, and preserve certain benefits, while averting immediate austerity measures. The combination of mandatory tax hikes and reduced federal spending, which had been set to go into effect on January 1, had been known as the "fiscal cliff."

"We had three choices: We were going to be off the cliff, we we're going to be on the cliff, or we were going to avoid the cliff, and we avoided it," said Brian Battle, director of trading at Performance Trust Capital Partners in Chicago.

"There's a relief rally, some progress because we raised revenue, but I think it's going to be short-lived because the relief rally today was created by politics, and the next cliff is going to be created by politics."

The vote avoided tax hikes for all U.S. households, but failed to resolve other political budget showdowns. Spending cuts of $109 billion in military and domestic programs were only delayed for two months, and another fight over the U.S. debt limit looms at that time as well.

U.S. stocks ended 2012 with the S&P 500 up 13.4 percent for the year, as investors largely shrugged off worries about the fiscal cliff.

The Dow Jones industrial average shot up 217.08 points, or 1.66 percent, to 13,321.22. The Standard & Poor's 500 Index rose 23.60 points, or 1.65 percent, to 1,449.79. The Nasdaq Composite Index gained 65.56 points, or 2.17 percent, to 3,085.07.

Bank shares rose following news that U.S. regulators are close to securing another multibillion-dollar settlement with the largest banks to resolve allegations that they unlawfully cut corners when foreclosing on delinquent borrowers.

Bank of America Corp rose 3.5 percent to $12 and Wells Fargo shares added 2 percent to $34.87. JPMorgan Chase & Co shares rose 1.4 percent to $44.28.

Shares of Apple rose 2.3 percent to $544.45, boosting technology stocks, following a report that the most valuable tech company has started testing a new iPhone and a new version of its iOS software.

Shares of Zipcar Inc jumped 48.5 percent to $12.24 after Avis Budget Group Inc said it would buy Zipcar for about $500 million in cash to compete with larger rivals Hertz and Enterprise Holdings Inc. Avis rose 4.9 percent to $20.80.

U.S. manufacturing expanded slightly in December after an unexpected November contraction, an Institute for Supply Management report showed on Wednesday.

A Commerce Department report showed U.S. construction spending fell in November for the first time in eight months, as an extended bout of weakness in the business sector outweighed modest growth in outlays on residential projects.

The stock market's reaction to both reports was muted.

(Editing by Jan Paschal)