US stocks edge up on fresh hopes for 'cliff' deal

US stocks traded higher in early action on the last day of the year Monday as investors held out hope for a last-minute deal hours before the deadline to avoid the economy-crunching fiscal cliff.

After 30 minutes of trade the Dow Jones Industrial Average was up 4.65 points (0.04 percent) at 12,942.76.

The broad-market S&P 500 gained 4.04 (0.29 percent) at 1,406.47, while the tech-rich Nasdaq Composite added 16.26 points (0.55 percent) at 2,976.57.

After a weekend in which Washington leaders failed to find a compromise on a fiscal deficit reduction plan, the cliff's steep automatic spending cuts and tax hikes appeared likely to begin taking effect at midnight, pushing the country toward possible recession.

But comments after the market opened Monday by Senate majority leader Harry Reid that he was hopeful for a deal appeared to encourage investors who had dumped stocks on Friday as the cliff seemed certain.

"Stocks are close to pricing in a lot of this political failure and brinkmanship. If no last-minute deals are cobbled together, this last day of the year will likely bring another round of selling," said Kevin Cook of online broker Zacks.

"But since a new playing field with new incentives exists on the other side of tonight's cliff, the chances to prevent a recession are numerous, manageable, and conceivable."

In major stock movements, Caterpillar rose 1.4 percent, Bristol-Meyers Squibb gained 2.3 percent, Apple was up 2.9 percent, and Facebook added 2.0 percent.

Bond prices fell. The 10-year US Treasury yield rose to 1.73 percent from 1.71 percent Friday, while the 30-year moved to 2.90 percent from 2.88 percent. Bond prices and yields move inversely.