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Spending by U.S. consumers increased in December for a third consecutive month, signaling the biggest part of the economy will contribute more to growth in coming months.

The 0.2 percent increase in purchases was less than anticipated and followed a 0.7 percent gain in November that was larger than previously estimated, Commerce Department figures showed today in Washington. Incomes climbed 0.4 percent, exceeding expectations.

Retailers such as Amazon.com Inc. are posting profits on increased sales as Americans spent more this past holiday season than the year before. Employment is key to propelling bigger gains in spending, one reason the Obama administration is proposing a fiscal 2011 budget today that calls for $100 billion in additional stimulus focusing on jobs.

“Consumers have the wherewithal to support good spending, however they are going to be reticent until they see a few good months of job gains,” said Craig Thomas, a senior economist at PNC Financial Services Group Inc. in Pittsburgh, who correctly forecast the gain in spending. “2010 is lined up to be a moderately good year.”

Stock-index futures held earlier gains following the report. The contract on the Standard & Poor’s 500 Index rose 0.6 percent to 1,076.5 at 9:10 a.m. in New York. Treasury securities fell.

The median estimate of 65 economists surveyed called for a 0.3 percent increase in spending, after an originally reported gain of 0.5 percent the prior month. Projections ranged from no change to 0.7 percent.

Income Gains

The gain in incomes followed a 0.5 percent increase in November and exceeded the 0.3 percent median estimate in the Bloomberg survey. Wages and salaries climbed 0.1 percent in December after increasing 0.4 percent the prior month.

Today’s report showed prices were stabilizing. The inflation gauge tied to spending patterns rose 2.1 percent from December 2008, less than the survey median forecast.

The Fed’s preferred price measure, which excludes food and fuel, climbed 0.1 percent in December from the previous month and was up 1.5 percent from a year earlier.

Adjusted for inflation, spending climbed 0.1 percent following a 0.4 percent rise the prior month.

Because the increase in spending was smaller than the gain in incomes, the savings rate rose to 4.8 percent from 4.5 percent the prior month.

Disposable income, or the money left over after taxes, increased 0.4 percent.

Better Sales

Amazon, the world’s largest Internet retailer, posted profit and sales that beat analysts’ estimates and said revenue growth may accelerate this quarter as consumers start spending more following the recession. Sales may rise as much as 43 percent to $7 billion in the first quarter, more than last year’s 18 percent growth, the Seattle-based company said last week in a statement. Analysts surveyed by Bloomberg had estimated sales of $6.42 billion.

Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, climbed 0.2 percent in December after rising 2.3 percent the prior month.

Purchases of non-durable goods decreased 0.8 percent, and spending on services, which account for almost 60 percent of all outlays, increased 0.4 percent.

The economy grew at a 5.7 percent annual rate in the fourth quarter, exceeding the median forecast of economists surveyed, figures from the Commerce Department showed last week. Consumer spending, which accounts for 70 percent of the economy, climbed at a 2 percent pace, also exceeding expectations.

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Spain’s unemployment rate, the highest in the euro region, rose more than economists expected in the fourth quarter, threatening to delay recovery from the worst recession in six decades.

The jobless rate rose to 18.8 percent from 17.9 percent in the previous quarter, the National Statistics Institute said today in an e-mailed statement. The active population fell as immigrants left the labor market. The rate had been expected to climb to 18.5 percent, according to a Bloomberg News survey of five economists.

Reeling from the collapse of a debt-fueled construction boom as well as the global crisis, Spain’s unemployment rate has more than doubled in two years and joblessness among young people has surged beyond 40 percent. The greatest job losses in the euro region are eroding support for the Socialist government of Prime Minister Jose Luis Rodriguez Zapatero, re-elected in 2008 on pledges of full employment, even after his stimulus programs put more than 400,000 people back to work.

“This is going to make the recovery more difficult,” said Estefania Ponte, an economist at Fortis Bank in Madrid. “The most important factor for private consumption is the labor market, and if there’s no improvement in the labor market, it’s very difficult for consumption to recover.”

Construction Workers

About half a million construction workers joined the jobless ranks in the two years to December as the decade-long building boom came to an end, Labor Ministry data show. Ford Motor Co. announced 600 job cuts last year in Spain, once the motor of job creation in the euro region, and olive-oil bottler SOS Corporacion Alimentaria SA also reported plans for layoffs.

The government’s 8 billion-euro ($11.2 billion) works program, which employed builders to widen sidewalks and install cycle routes, ended last month and is being replaced this year with a program half its size. Monthly jobless figures for January will be published on Feb. 2.

“It’s quite a risk,” said Giada Giani, an economist at Citigroup Global Markets in London, who expects unemployment to reach 20 percent this year. “With no pickup in employment, wages slowing and inflation picking up, the overall impact on real disposable incomes for households is likely to be felt more in 2010 than last year.”

People’s Party Gains

The opposition People’s Party extended its lead over the ruling Socialists and would win 43.6 percent of the vote if elections were held now, a poll published in El Mundo newspaper showed on Jan. 2. Unemployment is Spaniards’ main concern, according to the latest survey from the state-run Center for Sociological Research.

While the International Monetary Fund expects the 16-nation euro area, the U.S. and the U.K. to expand this year, it forecasts Spain will contract 0.6 percent in 2010. The budget deficit probably grew to 11.2 percent of economic output in 2009, according to a European Commission forecast, as job losses mounted and the government extended benefits for the long-term unemployed.

The Cabinet today plans to discuss spending cuts of as much as 50 billion euros by 2013, the deadline set by the commission to bring the shortfall within the EU’s 3 percent limit, said an official at the prime minister’s office who declined to be named in line with policy.

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Ben Bernanke watch: 6 days and counting.

The Federal Reserve chairman’s term ends on Sunday, and Washington is abuzz with speculation about whether the Senate will reconfirm him.

The Obama administration is confident that he has the 60 votes he needs to get Bernanke another term.

"We need his leadership," White House adviser David Axelrod told CNN on Sunday. "And the president is very confident that the chairman will be confirmed."

Obama phoned senators over the weekend to "check in" a White House official told CNN. And Senate leaders also scrambled to see where the votes are. Bernanke is expected to spend part of Monday talking to senators on Capitol Hill.

Until last week, Bernanke’s confirmation had been viewed as a sure thing.

But voter frustration has been growing against Washington, as lawmakers are accused of doing a better job at getting Wall Street back on its feet than Main Street.

Then Massachusetts voters chose upstart Republican Scott Brown to take over a Senate seat once considered a Democratic stronghold.

Gauging support: Lawmakers, especially those up for election in November, began to publicly turn on Bernanke.

Last Friday, Sens. Barbara Boxer, D-Calif., and Russell Feingold, D-Wis., said they plan to vote against Bernanke. Both are up for re-election this fall. Several other Democratic senators told CNN they’re undecided.

Even Senate Majority Leader Harry Reid, D-Nev., who is also up for re-election and down in the pools, issued a tepid statement late Friday saying he’d support Bernanke, but "my support is not unconditional."

It’s not clear whether Bernanke’s confirmation is in jeopardy, because he was always expected to win some Republican support.

Many Republicans and Democrats have yet to publicly declare their allegiance.

In the Senate Banking Committee, four Republicans voted to confirm Bernanke, crediting him for saving the economy from a second Great Depression payday loans.

Other Democratic senators and a Republican issued statements of support over the weekend. These include Sen. Chris Dodd, D-Conn., Sen. Judd Gregg, R-N.H., Sen. John Kerry, D-Mass, Sen. Dianne Feinstein, D-Calif. and Sen. Max Baucus, D-Mont.

"The White House appears to have applied a sufficient tourniquet to Bernanke’s reconfirmation over the weekend," wrote Chris Krueger, an analyst for Concept Capital Washington Research Group in a report.

But the Senate can’t even start the process of considering Bernanke until 60 senators sign off, because a few senators who oppose his confirmation filed official "holds" delaying the process.

Some have started to wonder whether Bernanke will be confirmed before Feb. 1. If the vote is delayed, there’s a question as to whether Bernanke can be temporarily re-appointed as acting chair. If not, Fed Vice Chair Donald Kohn would serve as acting chairman.

Senate Democrats are expected to start the confirmation process later this week, according to Congressional aides.

Bernanke has always had his critics in the Senate. Bernie Sanders, a left-leaning independent from Vermont who often votes with the Democrats, and Jim Bunning of Kentucky, Sanders’ political opposite, are two of the most vocal.

"Democrats and President Obama are putting their credibility on the line if they think they can criticize Wall Street and big banks one day and then turn around and support Bernanke, Wall Street’s candidate, the next day," Sanders said. "That doesn’t pass the smell test."

* CNN’s Jamie Crawford contributed to this report. 

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OTTAWA–The good old days of booming economic growth are not coming back in the years ahead, Bank of Canada governor Mark Carney warned in a gloomy assessment of the long-term strength of the Canadian economy.

Economic growth, which achieved a robust average rate of nearly 3.5 per cent in the late 1990s and early 2000s, won’t be much greater than 2 per cent beyond 2011, Carney said Thursday.

He put it down to an aging workforce and low growth in productivity, a measure of worker output that determines a society’s standard of living.

"Until we see evidence of an uptick in productivity, at least at this stage, looking for growth – real growth – much north of 2 per cent is not yet a realistic prospect," Carney told reporters after releasing the central bank’s quarterly outlook. "We have a productivity performance that has been relatively disappointing in recent years."

Economists said this means that, over the long term, Canadians will face declining living standards, reduced household incomes and mediocre employment prospects.

United Steelworkers economist Erin Weir said Carney’s long-term growth forecast will probably not be enough to significantly reduce unemployment, now running at 8.5 per cent.

"You’ve got this stock of unemployed workers and the bank is projecting enough economic growth to employ what you might call the new flow of workers into the labour market each year," he said. "But the bank is not actually projecting enough economic growth to bring down that stock of unemployed."

In the short term, Carney was cautiously optimistic, saying a global recovery is underway and economic and financial developments have been "slightly more favourable" than the central bank expected in its October report.

Economic output in Canada contracted by 2.5 per cent in 2009. But the country will return to growth of 2.9 per cent this year and 3 fast cash now.5 per cent in 2011, Carney said. Quarterly growth will begin to drop to the 2-per-cent range in the second half of 2011 and stay that way into the foreseeable future, Carney noted.

Carney gave no indication that the bank will stray from its commitment to maintain its key overnight rate at the current 0.25 per cent until mid-2010. Carney repeated that, barring a burst of inflation, he would maintain the record-low rate to spur economic activity and offset the recession.

But even his relatively upbeat forecast for 2010 was hedged with uncertainties. The higher-valued Canadian dollar and the possibility that the global recession will linger longer than expected are raising questions about the strength of the recovery, the bank said.

"There is a risk that persistent strength of the Canadian dollar could act as a significant further drag on growth," according to the quarterly Monetary Policy Report.

"Another important downside risk is that the global recovery could be even more protracted than projected."

The Canadian dollar, which has been trading in the 95-cent (U.S.) range on exchange markets, has climbed steadily over the past two years. As the loonie rises, it makes it harder for Canadian exporters to compete abroad, particularly in the key United States market.

The central bank said global economic growth will pick up over the next two years as the recovery takes hold, but the rebound in advanced industrial nations will be moderate.

In the U.S., the recovery will remain relatively weak, the bank said, although it predicted it would be a bit better than forecast due to stronger-than-expected growth in domestic consumption and exports. Carney forecast U.S. growth this year at 2.5 per cent, up from the 1.8 per cent predicted in October.

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Canadian media luminaries Jerry Grafstein, Raymond Heard and Beryl Wajsman announced today they are leading a consortium of local investors to acquire Montreal’s The Gazette, The Ottawa Citizen and The National Post.

The group is in the process of filing a bid to buy the three dailies Canwest LP, a division of Canwest Global Communications Corp. The partners hope to be able to begin due diligence on the operating data in the next few weeks.

The consortium partners have received strong financial commitments from unspecified sources. They said additional participants in the consortium will be announced shortly.

“Our partnership represents a cross spectrum of engaged Canadians committed to a vigorous, independent media voice for the communities that each newspaper serves. We are encouraged by the positive response we have received from investors,” the three consortium partners said. “We are firm in our view that there remains a bright future for newspapers supported by creative web platforms.”

The offer may face an uphill battle. The papers are part of a larger chain of 11 publications, which is currently operating under bankruptcy court protection from creditors. The chain is being offered for sale as an intact group, not as individual publications.

The founding family, headed by Leonard Asper, chief executive officer of Canwest Global, has indicated it wants to keep the papers together. Asper has noted in a pre-filing letter that the newspaper chain and another Canwest property, the Global television network, benefit financially from being able to sell joint advertising space to major national advertisers.

As well, the newspaper group would somehow have to improve on the offer Canwest already has on hand from its secured creditors, led by Canada’s major banks. The creditors say they will pay $950 million for the chain, the amount they are owed by Canwest LP.

But the media consortium said today it believes the newspapers would benefit from local involvement that would produce timely, informative, well-written stories and grassroots journalism reflecting the priorities of Canada’s diverse communities. Each newspaper has a loyal and interested readership, which the consortium said it is confident can be broadened and deepened.

Grafstein is a former Senator and founder of CITY-TV in Toronto and other electronic and print enterprises in Canada, the U.S., Europe and Latin America. He retired from the Senate when he turned 75 — the mandatory retirement age — on Jan. 2.

Heard, a media consultant with major corporate clients, was White House correspondent and Managing Editor of the Montreal Star, editor of the London Observer News Service, and head of Global TV News, which is also owned by Canwest.

Wajsman, is editor of Quebec’s largest English-language weekly, publisher of the bilingual journal of political commentary, The Metropolitan, and was the producer and host of a Montreal radio news magazine program.

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European Central Bank President Jean-Claude Trichet intensified pressure on Greece to cut the continent’s biggest budget deficit with a warning that the country won’t get any favors from policy makers.

As Prime Minister George Papandreou struggles to convince investors and European Union governments he can regain control of the country’s budget, Trichet yesterday said no nation can expect any “special treatment.”

“The central bank has clearly chosen to maintain its pressure on the Greek government, rather than easing the heightened tensions in bond markets,” said Laurent Bilke, a former ECB economist now at Nomura International Plc in London.

Greek bonds extended declines after Trichet’s comments, which came after the ECB left its benchmark interest rate at a record low of 1 percent. While Greece was his main target, Trichet told other euro members to take the “difficult decisions” needed to tackle “sharply rising” budget gaps or face higher borrowing costs that hurt economic growth.

The Greek remarks eclipsed those made on monetary policy as officials turn their attention from the financial crisis to the nations most hurt by the recession. German Chancellor Angela Merkel said in comments published yesterday that Greece’s fiscal woes could hurt the euro and Luxembourg Prime Minister Jean- Claude Juncker said International Monetary Fund aid wouldn’t be “appropriate.”

Collateral

Rating downgrades sparked a rout in Greece’s bonds in December as investors tuned into a budget deficit of 12.7 percent of gross domestic product, more than four times the European Union limit. The yield on the 2-year Greek note today rose 6 basis points to 3.559 percent, extending yesterday’s gain of 44 points.

Arguing that it has received enough of a benefit from euro membership, Trichet said the ECB won’t help Greece by delaying the reintroduction of its pre-crisis collateral rules at the end of 2010. Downgrades by Fitch Ratings, Moody’s Investors Service and Standard & Poor’s have fanned concerns its bonds will be excluded from the ECB’s market operations.

“We will not change our collateral policy for the sake of any particular country,” Trichet said.

The subsequent selloff suggests the market “still harbors hopes that the ECB would abort its collateral decision,” said Elga Bartsch, chief European economist at Morgan Stanley in London guaranteed high risk personal loans. Juergen Michels, chief euro-area economist at Citigroup Inc., said the ECB will ultimately agree to rules “that do not put too much additional pressure on member countries.”

Short Shrift

Trichet also downplayed the importance of Greece for the euro region as a whole. While Greece makes up about 3 percent of the bloc’s GDP, 13 percent of the U.S. economy is accounted for by California, which is also suffering financial difficulties.

Those remarks drew short shift from Andrew Bosomworth, a former ECB economist and now head of portfolio management at Pacific Investment Management Co. in Munich. He warned Greece could still cause “contagion” to other economies with poor finances such as Portugal or Spain.

“While each of those countries in their own right may not be very big, or a threat to the euro area, if one of them were to go you have potential domino effect that could snowball into a big problem for the euro area,” Bosomworth said in a television interview yesterday.

Marco Annunziata, chief economist at UniCredit Group in London, said policy makers are playing a “nerve-wracking game of chicken” in the hope that their tough rhetoric will pressure Greece into action.

Budget Shortfall

“If a rescue turns out to be necessary, a rescue operation will be mounted,” Annunziata said.

In Athens, Papandreou yesterday pledged to “do whatever it takes” to rein in the budget shortfall and restore confidence in the country’s finances when he published the three-year budget plan.

The government’s latest proposals, to be presented to the European Commission today, call for about 10 billion euros ($14 billion) of spending cuts and revenue increases this year to bring the shortfall from 12.7 percent of output to 8.7 percent by year-end.

“Our country can and is obliged to exit as soon as possible this vicious circle of misery,” Papandreou said. “We will not retreat; we will proceed quickly.”

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OTTAWA–Canadian businesses reported near record optimism about their future sales and say they are stepping up plans to hire more workers and invest, the Bank of Canada said Monday.

Seventy per cent of executives said sales growth will quicken over the next year, while another 21 per cent expect it to slow, the bank said in a quarterly Business Outlook Survey. The gap of 49 percentage points is close to 53 in the last survey, the biggest since the question was first asked in 1998.

Executives on balance said for the second quarter since mid-2007 that credit conditions had eased. Twenty-six per cent of executives said loans were easier to get, compared with 13 per cent who said they were harder. In the last report, the gap was four percentage points.

The survey indicated that terms have improved more for large companies, with some small firms still facing tighter lending terms.

Executives also predict slower inflation over the next two years, and on balance plan to buy equipment and hire workers.

On hiring intentions, 54 per cent of the 100 firms surveyed by the bank said they planned to add employees in the next year, as opposed to only 14 per cent that said they expected to reduce staff.

The balance of opinion on adding to payrolls in the next year was 40 percentage points, the highest since the first quarter of 2007. For investment in machinery and equipment, the balance of opinion was 17 percentage points, the highest since the third quarter of 2008.

In a news conference in St. Boniface, Man., Finance Minister Jim Flaherty said he was encouraged that both consumer and business confidence were improving but added that dangers remained.

"The economy is still recovering … (but) has not recovered," he said.

From the Star’s wire services

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The 2010 census couldn’t have come at a better time for the U.S. economy.

The government will hire about 1.2 million temporary workers in the first half of the year to administer the decennial population count, possibly providing a bridge to gains in private employment later in the year.

The surge will probably dwarf any hiring by private employers early in 2010 as companies delay adding staff until they are convinced the economic recovery will be sustained. Money earned by the clipboard-toting workers going door-to-door to verify the government population survey is likely to be spent, giving the economy an extra lift.

“It’s a short-term stimulus program in which the government’s injecting money into the economy through additional paychecks,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York, who projects that 2.5 million more Americans will be working at the end of the year. “This will support consumer income during those months.”

Payrolls unexpectedly fell 85,000 last month, a Labor Department report showed today, and revisions showed they increased by 4,000 in November, the first gain in almost two years. Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 4,000 workers after adding 62,000 the previous month.

The economy will add 1.1 million jobs by the end of the year, according to the consensus estimate in a survey last month by Blue Chip Economic Indicators.

“We have the strongest increases in the second half of the year,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, referring to the firm’s forecast for hiring to grow by 800,000 this year.

Third Quarter

Economists’ payroll estimates for the year exclude the census numbers since the jobs created are temporary, with most disappearing by the end of the third quarter and the rest gone by December.

The stimulus bill President Barack Obama signed in February and additional funding by Congress provided enough money to hire 1.4 million Americans in total for the census, almost three times as many as in 2000 easy online payday loans. About 160,000 were already employed last year to do preliminary work.

The Census Bureau anticipates hiring about 181,000 workers from January through March and about 971,000 in the following three months.

First Five Months

The economy may add about 700,000 jobs in May alone, mostly because of the census, Gault said. Even Maki’s more optimistic assessment of the employment outlook means the U.S. may take years to recover the 7.2 million jobs lost since the recession began in December 2007.

“The bulk of these employees are from the low end of the income distribution; they are cash-constrained,” said Neal Soss, chief economist at Credit Suisse in New York who forecasts the economy will add a little more than 1 million jobs this year. “Having a paycheck is allowing them to spend in a way that they wouldn’t otherwise.”

Hiring for the census may also help lower the unemployment rate early this year, economists said, though the influence will be less than in payrolls. For example, some of the people hired may have other part-time jobs, limiting the impact on joblessness.

By the end of the year the jobless rate will fall to 9.7 percent, according to the median estimate of economists surveyed by Bloomberg News. The unemployment in December held at 10 percent.

Optimistic Outlook

Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York, is among those optimistic about the outlook for jobs early in the year with or without the help from the census.

“We think it’s going to ramp up pretty quickly,” he said. Kasman forecasts the economy will create more than 2 million jobs this year.

Other economists anticipate a labor market weakness will persist through the next six months, even taking into account the census hiring.

“The labor market will effectively be stalled through the first half of 2010,” said James Shugg, a senior economist at Westpac Banking Corp. in London.

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A unit of Smith International Inc. has taken over a three-year contract with Petróleo Brasileiro, Brazil’s state-owned energy giant.

Houston-based Smith (NYSE: SII) will operate the Petrobras contract through its PathFinder Energy Services unit at its new facility in Macae, Brazil.

The deal represents possible revenue of between $80 million and $100 million business card design. PathFinder will also acquire all related directional drilling assets from San Antonio International do Brasil.

San Antonio International had previously been the lead contractor through which PathFinder had taken on contracts in that country, Smith officials said in a statement.

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Stocks ended a choppy session barely higher Wednesday, with the Dow and Nasdaq eking out fresh 2009 highs as investors mulled a stronger dollar and opted to play it cautious at the end of a tumultuous year.

The Dow Jones industrial average (INDU) added a few points, ending at the highest point since Oct. 1, 2008. The S&P 500 index (SPX) ended just above the unchanged line, closing just shy of 15-month highs hit two days ago.

The Nasdaq composite (COMP) added a few points, ending at the highest point since Oct. 3, 2008.

Stocks ended a volatile session modestly lower Tuesday, with the three major indexes breaking a six-session winning streak that had left the market at 15-month highs. That weakness spread into Wednesday’s session, the second-to-last trading day of the year.

A stronger U.S. dollar put some pressure on the market as well, dragging on commodity prices and stocks, and pulling down shares of companies that do a lot of business overseas and therefore benefit from a weaker dollar. After sliding for most of the year versus the euro and yen, the dollar has gained over the last few weeks as investors have bet that the economy is improving.

Trading volume has been low this week, with many market pros and individual investors on vacation. Lighter trading volume can cause increased volatility. All financial markets are closed Friday for the New Year’s Day holiday.

Year-to-date, the Dow has risen 20%, the S&P 500 has climbed almost 25% and the Nasdaq has gained 45%, as of Tuesday’s close. All three indexes have posted more substantial gains since falling to multi-year lows on March 9 amid the height of the financial crisis.

"I think the market seems to have ended the year on a slightly positive note, with many investors happy to lock in their profits and look ahead to the new year," said Michael Sheldon, chief market strategist at RDM Financial Group.

Any stock market gains accrued next year are expected to be a lot milder, analysts say, as the government stimulus fades at the same time the slow-growing economy struggles to create jobs. Meanwhile, the consumer spending environment is expected to stay weak, the dollar could firm up and the Federal Reserve is expected to begin raising interest rates in the second half of 2010.

Sheldon said that 2010 could end up looking something like 2004, which proved to be a leveling year after the massive gains of 2003. 2003’s gains followed a three-year bear market.

The S&P 500 rose 26% in 2003, seesawed for the first nine months of 2004 and then managed a big run in the last quarter, ending the year up around 9%.

Sheldon said it wouldn’t be surprising to see the market churn or even selloff a bit in the first half of the year but eventually move back up to end the year with gains of 10% to 15%.

Other analysts are concerned that a bigger selloff could take hold, particularly if economists have been overly-optimistic about the economy’s ability to recharge once the fiscal and monetary stimulus starts to fade out.

"Right now the sentiment in the stock market is at bullish levels that haven’t been seen since 2007," said Matt Havens, wealth advisor at Global Vision Advisors. In October 2007, the S&P 500 and Dow industrials closed at all-time highs and the Nasdaq composite at the highest point since 2000.

"The underlying strength of the economy is uncertain going into the next year and the longer stocks keep moving higher, the greater the potential for a significant pullback," Havens said.

Economy: The Chicago PMI, a regional read on manufacturing, rose to 60 in December from 56.1 previously. The improvement was a surprise, with economists surveyed by Briefing.com expecting it to drop to 55.1.

Financials: Troubled auto and mortgage financing firm GMAC Financial Services is expected to receive a third round of bailout funds, according to a published report. GMAC is expected to get an additional $3.8 billion on top of the $13.5 billion it has already received since Dec. 2008.

World markets: Asian markets mostly ended lower. In Europe, London’s FTSE 100 lost 0.7%, Germany’s DAX lost 0.9% and France’s CAC 40 lost 0.6%.

Commodities and the dollar: COMEX gold for February delivery fell $5.60 to settle at $1,092.50 an ounce. Gold closed at an all-time high of $1,218.30 an ounce earlier this month.

U.S. light crude oil for February delivery rose 41 cents to settle at $79.28 a barrel on the New York Mercantile Exchange.

Bonds: Treasury prices rose, lowering the yield on the 10-year note to 3.79% from 3.80% late Tuesday. Treasury prices and yields move in opposite directions.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by eight to seven on volume of 645 million shares. On the Nasdaq, advancers topped decliners seven to six on volume of 1.31 billion shares. 

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