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New York - Investors drew little hope Wednesday for a quick compromise in U.S. budget talks after President Barack Obama insisted that higher taxes on wealthy Americans would have to be part of any deal.
Stocks fell sharply, and even a signal from the Federal Reserve that it could launch a program in December to speed job growth failed to encourage investors. The Dow Jones industrial average dropped 185 points.
Obama made clear he would seek higher tax revenue from the wealthiest Americans, which faces opposition among some Republicans in Congress. Obama said that a modest increase on the wealthy "is not going to break their backs."
"The Street was looking for him to say some magic buzzwords about avoiding the "fiscal cliff,' about cooperation," Sal Arnuk of Themis trading. Instead, Arnuk said, the remarks were "unyielding."
Stocks have fallen steadily since voters returned Obama and a divided Congress to power Nov. 6. The Dow has fallen 675 points, including three single-day drops of more than 100 points.
The Standard & Poor's 500 index has dropped 5 percent in that time, returning to where it stood in late July.
"Investors' hopes that the election would end uncertainty remain unfulfilled," said Lawrence Creatura, a portfolio manager at Federated Investors in Rochester, N.Y. "It's very tough to determine what happens next."
On Wednesday, the Dow dropped 185.23 points to 12,570.95. The S&P slipped 19.04 points, or 1.4 percent, to 1,355.49, and the Nasdaq composite was down 37.08 points, or 1.29 percent, at 2,846.81.
Stocks are still up on the year, though they have pared gains since peaking in September. The S&P has fallen 7.5 percent since its Sept. 14 peak, and the Dow has fallen 7.6 percent, more than 1,000 points, since its Oct. 5 peak.
Among individual stocks, Abercrombie & Fitch, which sells teen clothes, bucked the trend of a declining market and was by far the best-performing stock in the S&P 500.
Abercrombie jumped $10.54 to $41.92 after reporting that its international business was thriving and that its net income soared 40 percent in the most recent quarter, more than financial analysts were expecting.
The strong results from Abercrombie were tempered by a report from the Commerce Department saying that Americans cut back on spending in October, suggesting that many are still cautious about the economy.
The Federal Reserve released minutes of its October meeting and suggested that it may start a new program of buying U.S. government bonds to try to spur job growth.
The purchases are intended to lower long-term borrowing rates to encourage spending and strengthen the economy. The hope is that more hiring would follow. The yield on the 10-year Treasury note was unchanged at 1.59 percent.
Obama said Wednesday that he would not to cave to Republicans who have pressed for tax cuts first passed by President George W. Bush to be extended for all income earners.
Obama has long opposed extending the cuts for families making more than $250,000 a year, but he gave in to GOP demands in 2010, when the cuts were up for renewal.
The president also met with business leaders Wednesday to discuss the economy.
Obama is to meet Friday with Republican House Speaker John Boehner and the top Republican in the Senate, Mitch McConnell. They are expected to designate aides to begin the search for a compromise on the budget.
Boehner and McConnell have said they won't agree to raise tax rates for the wealthy. There are ways to increase tax revenue from the wealthy without rates, including limiting tax deductions, but the path to compromise is unclear.