NEW YORK ( TheStreet) -- Major U.S. equity averages held gains on Tuesday despite a final-hour scare by Senate Majority Leader Harry Reid's comments on the so-called fiscal cliff.

Stocks were initially buoyed by confidence over fiscal-cliff negotiations and an upbeat economy in Germany, Europe's largest nation. The two-day Federal Open Market Committee meeting got under way, heightening expectations the central bank will continue to keep interest rates low.

The technology sector led gains, as Apple ( AAPL) shares advanced 2.2% to $541.39 after being mired in pessimism.

Societe Generale noted that, after playing out on TV screens, fiscal-cliff negotiations seemed to have shifted to a quieter stage and that the near-silence about the weekend meeting between President Barack Obama and House Speaker John Boehner has led to speculation that the two sides are getting closer to a deal.

Reid emerged Tuesday afternoon to tell reporters that he believed it would be "extremely difficult" for legislators to reach a deal to avoid the cliff before Christmas.

Still, investors got a confidence boost from a leap in Germany's ZEW economic sentiment survey to 6.9 in December, which was much better than the minus 12 expected by economists and the previous measure of minus 15.7. It contrasted with the recent sobering growth forecast for Germany from the Bundesbank and euro area from the European Central Bank.

The Dow Jones Industrial Average gained 79 points, or 0.6%, to 13,248. The blue-chip index, which has been up four consecutive sessions, began the day up more than 8% in 2012.

The S&P 500 rose 9 points, or 0.65%, to 1,428.

Breadth was highly positive, with winners outnumbering losers 26 to four. Intel ( INTC), 3M ( MMM), Microsoft ( MSFT) and Merck ( MRK) were the top blue-chip gainers.

Wal-Mart ( WMT), Bank of America ( BAC) and Home Depot ( HD) took the biggest hit.

The Nasdaq gained 35 points, or 1.2%, to 3,022.

All sectors in the broader market were in positive territory, led higher by technology, health care, conglomerates and basic materials.

Volumes reached 3.58 billion shares on the Big Board and 1.87 billion shares on the Nasdaq. Advancers outpaced decliners 2.1-to-1 on the New York Stock Exchange and 2.5-to-1 on the Nasdaq.

The FOMC -- the Federal Reserve's rate-setting arm, began its two-day meeting Tuesday. It's widely expected that the talks will be followed by the announcement of a $40 billion to $45 billion a month Treasury purchase program targeted on longer-dated Treasuries, expanding their total purchases per month, including mortgage-backed securities, to $85 billion.

Drew Matus, senior U.S. economist at UBS, said the ultimate size of the program will depend on whether the Fed believes market liquidity is impaired and if they view "Operation Twist" as having been a success.

Jordan Waxman, managing director and partner at HighTower HSW Advisors, said that in an ideal scenario, the excess liquidity created by the central bank's quantitative easing, Operation Twist and other tools would allow homeowners to lower their mortgage costs, banks to lend to businesses at lower rates, and individuals to borrow and spend, thus reviving the economy and bringing employment back in full force and spurring healthy inflation.

But Waxman is skeptical that scenario could play out, pointing to persistent excess slack in the labor market and home foreclosures, and banks' reluctance to lend. While U.S. companies continued to hold back on hiring, pending a bipartisan agreement on tax and spending reform, Waxman notes that the financial-services sector is being hit particularly hard on the employment front, shedding thousands of jobs in order to save costs.

"The upshot is that this is a Forrest Gump economy," he said. "It will limp along in braces until surprising everyone by running away."

And "at that time, interest rates will not ratchet up smoothly, but rather start to jump," adding to the cost of the ballooning budget deficit and potentially paving the way toward the next U.S. recession.

The Census Bureau reported Tuesday that the U.S. trade deficit widened to $42.2 billion in October from a downwardly revised $40.3 billion in September. Economists, on average, expected a trade deficit of $42.6 billion in October.

The Census Bureau also said that wholesale inventories rose 0.6% in October after increasing by 1.1% in September. Economists predicted an increase of 0.4% in October.

Gold for February delivery fell $4.80 to settle at $1,709.60 an ounce at the Comex division of the New York Mercantile Exchange, while January crude oil contracts gained 23 cents to close at $85.79 a barrel.

The benchmark 10-year Treasury fell 10/32 to push the yield up to 1.656%. The dollar was down 0.34%, according to the U.S. dollar index.

In corporate news, the U.S. Treasury said it would sell its remaining stake of more than 234 million shares of American International Group ( AIG), the bailed-out insurer. Shares of AIG jumped 5.7%.

Delta ( DAL) said it will invest $360 million to acquire 49% of faltering Virgin Atlantic Airways, creating a trans-Atlantic joint venture that will operate up to 31 daily round-trip flights. Delta shares popped 5.1%.

TNS ( TNS) shares soared 43% after the international data communications company announced that it has agreed to be acquired by an investor group led by Siris Capital Group in a transaction valued at about $862 million.

Urban Outfitters ( URBN) shares jumped 4.5% after the specialty retailer gave an upbeat preview of fourth-quarter same-store sales and two firms boosted their price targets on the stock.

Texas Instruments ( TXN) reduced its outlook for fourth-quarter earnings. Still, shares tacked on 4% as chipmakers advanced.

HSBC ( HBC), Europe's largest bank, said Tuesday it would pay $1.9 billion to settle a U.S. money-laundering probe. Shares closed up 0.58%.

Morgan Stanley ( MS) could soon ask U.S. regulators to allow it to buy back shares for the first time in more than four years, The Wall Street Journal reported, citing people familiar with the firm's thinking.

Morgan Stanley could make its request to the Federal Reserve as soon as January as part of the annual "stress-test" process, the people told the newspaper. Shares added 4.4%.

Dollar General ( DG) on Tuesday reported third-quarter earnings of 63 cents a share on revenue of $3.96 billion, compared with the average analyst estimate of 60 cents a share on revenue of $3.96 billion, as same-store sales increased 4% and surpassed that of a handful of rivals. Still, Dollar General's same-stores sales figures were weaker than Family Dollar Stores' ( FDO) 5.4% growth. Shares slid 7.8%.

Molycorp ( MCP) announced after the closing bell on Tuesday that CEO Mark Smith has left the rare-earth producer and has been replaced by an interim chief executive. Shares were down more than 6.5% in after-hours trading.

-- Written by Andrea Tse and Joe Deaux in New York.

>To contact the writer of this article, click here: Andrea Tse.

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