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The S&P 500 edged up, trading near its highest since June 2008, nominally a good sign, but the index was stuck in the 1,325-1,333 area without enough buyers to get through this technical hurdle.

A mere 6.6 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, the lowest volume so far this year and far below the 8 billion daily average for 2011.

Shawn Hackett, president at Hackett Advisors in Boynton Beach, Florida, said rising index levels on falling volume sets the stage for a pullback.

"Everything I see suggests the driver now is a last bit of greed and momentum before the market runs out of buyers," he said.

Three-month copper hit a record high after Chinese import figures suggested strong demand for basic materials. Freeport McMoRan Copper & Gold (FCX.N) jumped 4.9 percent to $56.14 and the PHLX Gold/Silver index .XAU rose 2.2 percent.

The Dow Jones industrial average .DJI dipped 5.07 points, or 0.04 percent, to 12,268.19. The Standard & Poor's 500 Index .SPX rose 3.17 points, or 0.24 percent, to 1,332.32. The Nasdaq Composite Index .IXIC gained 7.74 points, or 0.28 percent, to 2,817.18.

Wal-Mart Stores Inc (WMT.N) was one of the worst performers on the Dow after JPMorgan downgraded the stock. Shares fell 1.6 percent to $54.80.

The S&P 500 has gained nearly 27 percent since the start of September. It now stands near the 50 percent extension of last year's slide from April to July and also near 100 percent advance from the low hit in March 2009.

The coincidence of the levels makes the technical resistance stronger.

Still, some traders see residual strength in the market and are willing to buy on any declines in prices.

"We wouldn't be surprised to see a pullback, but longer term we think the market has room to grow," said Mitch Rubin, chief investment officer at RiverPark Advisors in New York.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of about 5 to 4, while on the Nasdaq, about seven stocks rose for every six that fell.

U.S. President Barack Obama proposed a federal budget that he said would cut the U.S. deficit by $1.1 trillion over the next 10 years. Congress must approve the plan, and Republicans, who are in the majority in the House, said it did not curb spending enough.

Obama's budget would provide $8 billion for investment in clean energy, but big drugmakers might take a hit from generic competition under two proposals in the plan.

The two have hammered out a broad framework for a merger deal that focuses on functions and personalities, with several executives chosen for key posts across Europe and the United States, three people familiar with the plan said.

Another source added that major issues like the exact exchange ratio and the premium to be paid to NYSE Euronext have been sorted out, and a definitive agreement is expected to be announced on Tuesday.

Among the issues they will leave in the too-hard basket for now are what to call the merged entity, how exactly it will cut costs, and which technologies it will favor, sources said.

Putting these off may only add to the questions being asked by some politicians on both sides of the Atlantic about whether the deal should be approved. Any delay could also open the door to rival bidders for NYSE Euronext -- one news report on Monday cited CME Group Inc as a potential buyer.

Some issues facing Deutsche Boerse-NYSE Euronext tie-up, which could still derail the plan, would need to be resolved over the coming weeks, said the sources, who requested anonymity because talks continue.

"The biggest question mark in general is obviously the European political and regulatory landscape coming out of this," one source said.

The boards of NYSE Euronext and Deutsche Boerse are set to vote Tuesday, two sources said. Deutsche Boerse will also publish quarterly results Tuesday.

The Frankfurt- and New York-based companies were center stage in the merger frenzy that erupted last week and heated up on Monday as Brazil's BM&FBovespa said it was eyeing its own prospects and as traders buzzed that CME Group could jump into the fray.

Fox Business Network reported that CME Group, currently the world's top derivatives exchange group, may make a hostile bid for NYSE Euronext, citing bankers.

A spokesman for Chicago-based CME declined to comment. CME officials have been guiding investors away from expectations that the company would do a merger deal.

BM&FBovespa, the world's fourth-largest financial exchange operator, is closely watching for tie-up opportunities, Chief Executive Edemir Pinto told Reuters.

Pinto said BM&FBovespa is interested in China and India as markets where it could pursue expansion because of their growth potential and similarities in terms of products. He added that a partnership with CME also has "room to grow," but did not elaborate.

In Australia, market operator ASX said it was in talks with suitor Singapore Exchange about changes to board arrangements as the sides seek to win political and regulatory support for their proposed tie-up.

'SENSITIVE AND COMPLICATED'

But Republicans, who accuse Obama of being a tax-and-spend Democrat, said the president had not gone far enough in curbing costs.

They aim to make the 2012 presidential election a referendum on his fiscal track record and threaten fights over a legal limit on the U.S. debt and how to fund the government in the short-term.

Obama said his plan was a balance between deficit reduction pain and investment for growth. It only provided a general guide on how to tackle entitlement outlays that include the Social Security and Medicare programs responsible for huge government spending.

"What we have done here is make a downpayment, but there is going to be more work that needs to be done and it's going to require Democrats and Republicans coming together to make it happen," he said at a school in nearby Maryland.

The budget calls for investments in areas such as high-speed rail, broadband Internet, and energy efficiency research. It makes cuts to programs that provide heating help for poor people and grants to big airports, for example.

Obama's $3.729 trillion budget proposal for fiscal 2012 shows the deficit rising to a record $1.645 trillion in fiscal 2011, then falling sharply to $1.101 trillion in 2012.

This trend would trim the deficit as a share of the U.S. economy to 3.2 percent by 2015 from 10.9 percent this year and meet a pledge Obama made to his Group of 20 partners to halve the deficit by 2013 compared to its size when he entered the White House in January, 2009.

The news was well-timed, with G20 finance ministers meeting in Paris on Friday and Saturday.

Two-thirds of the $1.1 trillion in savings come from spending cuts. The rest comes from higher revenues as U.S. growth steadily picks up pace and from tax increases. The president is seeking an additional $328 billion through a variety of measures, including ending tax breaks for big business on income earned abroad.

FIRST STEP

Standard & Poor's Chief Economist David Wyss said the budget was a "step in the right direction" but more was needed to be done in order to tackle entitlement spending.

He did not comment on the U.S. debt rating. A recent S&P report said a U.S. stable rating outlook assumes the government will "soon reveal a credible plan ... to enable the general government debt-to-GDP ratio to stabilize and then to decline." A ratings downgrade would likely push up U.S. borrowing costs.

Obama's budget for fiscal 2012 is a proposal to Congress and months of wrangling will now follow with Republicans, who control the House of Representatives and increased their seats in the Senate after November elections. They campaigned on deep cuts in federal spending.

"Congress often goes in a different direction," said Michael Moran, chief economist at Daiwa Securities America in New York, who was also disappointed there was not more from the president on tackling entitlements.

The two are hammering out a framework deal which focuses on functions and personalities, with Deutsche Boerse Chief Executive Reto Francioni slated to be chairman of what would be the world's largest exchange operator.

NYSE Euronext's general counsel, chief operating officer and global head of technology are set to retain their positions in the combined group, two people familiar with the plan told Reuters on Monday.

The details emerged Monday as Fox Business News reported that CME Group Inc (CME.O), currently the world's top derivatives exchange group, may make a hostile bid for NYSE Euronext, citing bankers.

A spokesman for Chicago-based CME declined to comment. CME officials have been guiding investors away from expectations that the company would jump in on the global merger frenzy.

Last week, the Frankfurt- and New York-based exchange operators revealed the first details of a merger plan that would give Deutsche Boerse shareholders about a 60 percent stake, and name NYSE Euronext's head Duncan Niederauer as chief executive.

Negotiations over a name, and where to locate various operations across the two continents, highlight some of the difficulties in bringing together companies that are both operationally complicated and symbols of national pride.

"There is an agreement in principle on the broad outlines of the deal," a European source familiar with the deal said.

But other people familiar with the situation said some other issues -- like that of job cuts in technology -- still need to be worked out in detail.

Past merger attempts have failed over such issues.

A deal is set to be presented to the boards of NYSE Euronext and to the supervisory board of Deutsche Boerse on Tuesday, people familiar with the matter said. Deutsche Boerse will also publish fourth-quarter results on Tuesday.

A formal deal announcement could come by mid-morning (Eastern Time) on Tuesday, two sources said.

OUTRAGE

In Germany, the deal is being sold as a German takeover of the NYSE or as a merger of equals. Any suggestion that the NYSE management team will be in control counters that public stance and could create an obstacle to the deal getting done.

Deutsche Boerse risks ceding control to NYSE Euronext (NYX.N), a supervisory board member at the German exchange said.

"The economy is healthier, but it is not yet well," Dudley said in remarks prepared for a press briefing. "In order to reduce joblessness significantly over the coming quarters, the economy needs to grow at a considerably faster rate than we have seen so far in this recovery."

Dudley said persistently low inflation probably hit a trough in the second half of last year but said it would take time for the jobless rate, currently at 9 percent, to fall. He also said it could take up to a year to see a "meaningful recovery" in the housing market.

Dudley is considered one of the more dovish members of the Fed's policy-setting committee and as head of the New York Fed has a permanent voting seat on the panel.

While the U.S. unemployment rate fell unexpectedly in January, Dudley said that was not "an unmitigated positive" and partly reflects people leaving the workforce.

But he said the Fed's $600 billion bond-buying program has helped to ease financial strains and stimulate growth. He expects brisker growth this year and in 2012, adding the "risk of a double-dip has subsided."

"Viewed through the lens of the Federal Reserve's dual mandate -- the pursuit of the highest level of employment consistent with price stability -- the current situation remains unsatisfactory," he said. "However, we appear to be heading in the right direction."

The U.S. economy grew at a rate of 2.9 percent in 2010 after contracting the previous year, and most economists expect quicker growth in 2011.

Dudley, who was speaking at a briefing on economic conditions in the New York Federal Reserve district, also noted that the flow of credit to households increased in the final three months of 2010. For the first time in two years, he noted, households increased their non-mortgage debt, albeit slightly, by $7.3 billion in the fourth quarter to $2.31 trillion.

For example, the number of credit card applications increased, indicating a pick-up in consumer demand for credit.

Total U.S. consumer indebtedness declined to $11.4 trillion as of December 31, continuing a two-year trend, according to a Fed survey also released on Monday. The number of credit card applications. (Reporting by Kristina Cooke and Steven C. Johnson; Editing by Chizu Nomiyama) steven.c.johnson@thomsonreuters.com; 1 646 223 6346