Wall Street held on to yesterday's gains sparked by the US budget deal but was cautious about extending the rally as attention turned to the next political hot potato overhanging financial markets -- the nation's debt ceiling.
Treasury Secretary Timothy Geithner plans to leave the administration at the end of January, even if President Barack Obama and congressional Republicans haven't reached an agreement to raise the debt ceiling, Bloomberg reported, citing two people familiar with the matter.
Meanwhile, Moody's Investors Service warned that the budget agreement won't cut the deficit enough to prevent a downgrade of the American sovereign credit rating.
Even so, the latest labour report was better than expected. The private sector boosted payrolls by 215,000 in December after adding 148,000 jobs in November, according to the ADP National Employment Report.
Initial claims for state unemployment benefits rose 10,000 to a seasonally adjusted 372,000 last week, according to Labor Department data. Claims data for nine states was estimated because of the Christmas and New Year holidays.
"The underlying economy has momentum, and the employment data confirms that. The hope and prayer of the market is that our political leaders don't screw it up," John Brady, managing director at RJ O'Brien & Associates in Chicago, told Reuters.
All eyes are now on tomorrow's official government payrolls report for December. The median forecast of economists in a Bloomberg survey projects a gain of 150,000 workers, following an increase of 146,000 in November. The unemployment rate held at 7.7%, the lowest since December 2008.
There were positive signs in other parts of the US economy. Car makers received a boost from better-than-expected December sales. Shares of General Motors gained 2.4% while those of Ford Motor climbed 3.1%.
Some retailers including Costco, Ross and TJX also enjoyed a lift from better-than-expected sales over the December month.
Shares of Gap gained, last up 2.7%, after a Wall Street Journal report that it will buy Intermix for $US130 million to enter the luxury women's clothes market.
In afternoon trading in New York, the Dow Jones Industrial Average eked out a gain of 0.04%, while the S&P 500 Index was up 0.02%, and the Nasdaq Composite Index gained 0.07%.
In Europe, the Stoxx 600 Index ended the day with a 0.4% slide from the previous close. France's CAC 40 Index and Germany's DAX both fell 0.3%. The UK's FTSE 100, however, gained 0.3%.
Germany's unemployment rose less than economists forecast in December, a sign perhaps that Europe's biggest economy will fare better than some earlier expectations.