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Obama, GOP Crush Stocks on Path to Fiscal Cliff Showdown

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(Updated to include comments from President Barack Obama.)

NEW YORK ( TheStreet -- Optimism returned after the market close on Friday that a meeting between President Obama and congressional Democratic and Republican leaders could lead to a renewal of negotiations to avert the "fiscal cliff," in spite of no new proposals offered by week-end.

With three days left to go until the New Year, it increasingly appears that Senate leaders may be able to broker a last minute deal, as Obama stands ready for a showdown with Republicans in Congress.

The president may either try to broker a new budget proposal between Senate Minority Leader Mitch McConnell (R., Ky.) and Majority Leader Harry Reid (D., Nev.), or force an up-or-down vote on his existing budget plan, unveiled a week ago.

At 3 p.m. Eastern time, Obama met with Republicans McConnell and Boehner and with Senate Majority Leader Harry Reid (D., Nev.) and House Minority Leader Nancy Pelosi (D., Ca). U.S. Treasury Secretary Timothy Geithner was seen attending the meeting along with Sen. John Kerry (D., Mass.), Obama's recently appointed secretary of state.

Markets fell sharply as the meeting convened and reports from CNBC and Bloomberg indicated Obama wouldn't offer any new proposals. However, in a White House address and in statements on the Senate floor, Obama, McConnell and Reid all offered signs that a last minute deal could be reached by Sunday evening.

"I just had a good and constructive discussion here at the White House... Senators Reid and McConnell are working on an agreement right now," said Obama in an address to the media that started at 5:45 p.m. ET.

While President Obama expressed optimism a deal on lower income and middle class tax cuts could be reached, which would also extend unemployment insurance set to expire in the New Year. He also showed a willingness to put a previous budget proposal to the Senate for an up or down vote, which the president said could pass.

On the Senate floor just after 5:15 p.m. ET, Reid indicated there was still time for a last-minute vote at 2 p.m. ET Sunday. "I think it was a very positive meeting," he said.

"We are engaged in discussions," said McConnell of the prospect that the Senate finds a bipartisan proposal that could face a Sunday afternoon Senate vote, which would subsequently move to the House. "I am hopeful and optimistic," he said.

Fiscal cliff talks in Washington turned optimistic just after 5 p.m. ET; however, it didn't filter to Wall Street, where trading closed at session lows on Friday, in the absence of new budget proposals offered at the White House meeting.

The Dow Jones Industrial Average declined 158 points, or 1.1%, closing below 13,000. Dow futures contracts have the index down by over 200 points.