MarketView for December 7

Summary 

A new round of hope that the euro zone will finally figure out a solution to its ongoing debt crisis inspired enough buying to push both the Dow Jones industrial average and the S&P 500 indexes into positive territory by the closing bell, resulting in a third day of gains. However the day's trading volume was light. The Euro zone nations are expected to vote on Friday on an agreement hashed out between Germany and France to tighten fiscal controls for member nations.

The financial markets have traded on euro zone sovereign debt crisis headlines for weeks, with markets expected to become increasingly volatile as the summit draws closer. Many on the Street are looking to position themselves ahead of an escalation of the crisis or a clear, manageable plan to keep it under control.

Meanwhile, financials were among the best performers, with JPMorgan Chase up 2.3 percent to close at $34.

The market remained jumpy given the track record of previous EU summits that disappointed investors. Yet, bearish developments, including Standard & Poor's euro zone credit rating downgrade warning on Monday, failed to trigger selling.

Despite the optimistic start to the week, the benchmark S&P 500 was unable to hold above its 200-day moving average for the third consecutive session, seen as a key technical resistance point which could trigger more buying.

French officials said French and German leaders will not leave the weekend summit until a "powerful" deal was reached. They want to impose mandatory penalties on nations that exceed deficit targets, a plan backed by U.S. Treasury Secretary Timothy Geithner, who is on a trip to Europe.

Among individual stocks, Martha Stewart Living Omnimedia rose 28.8 percent to $4.02 after JC Penney agreed to buy a 16.6 percent stake. Men's Wearhouse rose 19.6 percent to $32.51 after the clothing retailer reported quarterly profit that topped expectations.

Volume was light with about 7 billion shares changing hands on the major equity exchanges a number that was below the daily average of 7.95 billion shares. 

One More Round In A Seemingly Endless Series of Negotiations

France and Germany are to sound out conservative European leaders on Thursday about their plan to defuse the euro zone's debt crisis, eager to rally support before a high-stakes EU summit. Paris and Berlin need to win backing quickly for their crisis plan, which aims to amend the European Union's Lisbon treaty to toughen budget discipline, if they are to have it ready as they hope by March.

President Nicolas Sarkozy and Chancellor Angela Merkel have a chance to rally some other leaders behind their master plan before the EU summit at a congress of the conservative European People's Party on Thursday in Marseille, southern France. With many details still to be hammered out, Sarkozy and Merkel want to secure other EU countries' support at the summit starting late Thursday in Brussels and scheduled to end on Friday.

If all 27 EU states do not support more fiscal union by adapting the treaty, which took eight years to negotiate, then Sarkozy and Merkel want the 17 euro zone countries to go ahead alone with more integration.

The French and German leaders are due to arrive at mid morning in Marseille, and Sarkozy is due to make a speech at 1230 GMT. He and Merkel are both due to hold bilateral meetings later with Spanish Prime Minister-elect Mariano Rajoy before they head to Brussels.

"We need more binding and more ambitious rules and commitments for the euro area member states," Sarkozy and Merkel wrote in a letter to European Council President Herman Van Rompuy, who has made his own proposals for tackling the crisis.

"They should reflect that sharing a single currency means sharing responsibility for the euro area as a whole," the letter added.

The Franco-German plan would change the EU's treaty to slap automatic penalties on countries that overshoot deficit targets. The sanctions could be stopped only if three quarters of euro zone countries are against them.

Not all euro zone countries are comfortable with all the French and German proposals, with Finland opposed to their call for majority votes on major policy decisions.

"Finland's view is very clear, our stance is that unanimity is required in decision making ... and that is the view Finland will promote going forward as well," Finnish Finance Minister Jutta Urpilainen told reporters on Wednesday in Helsinki.

European Central Bank President Mario Draghi signaled last week that an overhaul of the euro zone's fiscal rules would be the condition for the central bank playing a greater role in calming the debt crisis.

With financial market doubts hanging over the euro zone's EFSF financial rescue fund, many economists say that the most effective way of getting a grip on the crisis would be for the ECB to play a more aggressive role.

As EU leaders prepare for their summit, the ECB will meet in Frankfurt on Thursday for a monetary policy meeting at which economists widely expect it to cut interest rates by 25 basis points to a record low of 1.0 percent

In a sign of concern about the crisis beyond Europe, U.S. Treasury Secretary Timothy Geithner has met Sarkozy and Draghi among other top officials during a whistle-stop tour of Europe to seek a breakthrough in the debt crisis.

EU leaders attending the Marseille congress are due to head to Brussels mid afternoon in time for a summit dinner, likely to run late into the night with many details about the crisis plan to be worked out.