The S&P/TSX composite index registered its first positive close all week, gaining 66.34 points to 11,877.72.
"It’s not unreasonable for people to be thinking about the worst case and fear is driving (the market) at the moment. But we don’t think the worst fears will be realized," said Robert Gorman, chief portfolio strategist at TD Waterhouse.
"There’s going to be a lot of drama. But at the end of the day, the consequences of this are so well-known, and so severe, that we think there will be some accommodation."
The TSX Venture Exchange was ahead 12.64 points to 1,235.34.
The Canadian dollar added 0.03 of a cent to 99.9 cents US.
U.S. markets also closed higher with the Dow Jones industrials ahead 45.93 points to 12,588.31, the Nasdaq up 16.19 points at 2,853.13 and the S&P 500 index up 6.55 points at 1,359.88.
Following a morning meeting at the White House, House Speaker John Boehner and Senate Minority Leader Mitch McConnell both said they offered higher tax revenue as part of a deal. Boehner said he outlined a framework that is consistent with Obama’s call for a “balanced” approach of both higher revenue and spending cuts.
North American markets have nosedived over the previous seven sessions as the results of the U.S. election deepened pessimism that politicians can avoid a "fiscal cliff" — a series of tax hikes and spending cuts set to take effect at the start of 2013.
Some economists estimate that if the current automatic measures aren't changed, about five percentage points will be cut from U.S. growth — plunging the world’s largest economy into recession and damaging an already fragile global economy.
The TSX has tumbled 3.9 per cent since the election as worries about a sudden slowing of economic growth would be bad news for a resource heavy market like Toronto's, since a lessening of demand for oil and metals would put pressure on mining and energy stocks.
The Dow industrials has fallen five per cent as investors worry about higher dividend and capital gains taxes.
Traders also took in data showing that superstorm Sandy depressed U.S. industrial output in October.
The Federal Reserve says industrial output fell 0.4 per cent last month, after a 0.2 per cent gain in September. Excluding the storm’s impact, production at U.S. factories, mines and utilities would have been up about 0.6 per cent.
Tech stocks led advancers as Research In Motion Ltd. (TSX:RIM) ran ahead 43 cents or 4.89 per cent to $9.23.
The gold sector was up about 0.85 per cent as December bullion edged up 90 cents to US$1,714.70 an ounce. Barrick Gold Corp. (TSX:ABX) was ahead 49 cents to $33.77 and Kinross Gold (TSX:K) gained 18 cents to $9.51.
Financials also strengthened during the afternoon as Royal Bank (TSX:RY) ran up 54 cents to $55.62.
The telecom sector was positive after a report that BCE Inc. (TSX:BCE) was planning to make a new takeover offer for broadcasting and advertising company Astral Media Inc. (TSX:ACM.A). The CRTC killed a $3.4-billion deal last month, saying it wasn't in the best interests of Canadians. The Globe and Mail said the new deal seeks to overcome regulatory opposition with a plan to auction off a number of Astral's English broadcast assets. BCE shares were ahead 61 cents at $41.99 while Astral shares ran ahead $2.14 to $44.40.
The TSX energy sector drifted 0.35 per cent higher even as December crude on the New York Mercantile Exchange moved up $1.22 to US$86.67 a barrel as investors monitored fighting between Israel and militants in Gaza and its potential impact on supplies. Canadian Oil Sands (TSX:COS) climbed 41 cents to $20.47.
The base metals sector was slightly higher as December copper fell one cent to US$3.45 a pound. HudBay Minerals (TSX:HBM) gained 22 cents to $9.15.
Elsewhere on the corporate front, Hostess Brands says it is going out of business, closing plants that make Twinkies and Wonder Bread for the U.S. market and laying off all of its 18,500 workers. The company says a nationwide worker strike crippled its ability to make and deliver its products at several locations.
Hostess had warned employees that it would file a motion in U.S. Bankruptcy Court to unwind its business and sell assets if plant operations didn’t return to normal levels by Thursday evening.