A sharp rise in crude oil prices failed to deter investors on Tuesday as they nibbled at stocks ahead of the Federal Reserve's decision on interest rates, set for release tomorrow afternoon.
The Dow Jones Industrial Average ended the day near session highs although gains were relatively modest, as was the advance for the tech-heavy Nasdaq. Broad buying of stocks in the S&P 500 allowed the benchmark index a daily gain of more than 0.50%.
Shares of Motorola rose after the company confirmed that billionaire investor Carl Icahn is seeking a spot on its board of directors. Icahn, who owns about 1.4% of Motorola outstanding shares, told CNBC he wants to utilize the company's cash reserves of approximately $12 billion.
3M the Dow's biggest disappointment after the company reported weaker-than-expected earnings with disappointing 2007 guidance. Shares of 3M fell 5.4% and shaved about 35 points off the Dow.
Merck shares fell after the company reported adjusted quarterly earnings in-line with Street estimates with fiscal 2007 guidance tracking slightly below analysts' expectations.
Breadth was firmly positive with NYSE advancers leading decliners by more than two to one. Unlike recent trading sessions in which a rise in energy stocks would often be countered by weakness in technology or industrials, today's advance was broad as all 10 S&P sectors closed higher.
"There's a lot of strength across many areas today because we have a lot of positioning taking place in front of economic data by people who are confident those numbers are going to go their way," Paul Mendelsohn, chief investment strategist at Windham Financial Services, told CNBC.com.
The S&P telecommunications index closed with a gain of 1.3% while energy rose 2.1%.
"The energy market is responding to the colder than normal temperature forecast for next week with some of those temperatures 20 degrees colder than normal around the Great Lakes areas," said Tim Evans, an energy analyst at Citigroup Futures Research.
"I would assume that this indicates that the larger downtrend that we've seen has run its course and I think crude could rally to $60 or more in the weeks ahead."
New York light crude futures surged more than 5% and closed just a touch below $57 a barrel.
Shares of integrated oil giants Exxon Mobil , BP, Chevron and ConocoPhillips , all closed with gains.
"It feels pretty good compared to how we looked at the open with oil up," said Bear Stearns' Michael Driscoll, senior managing director in equity trading. "There will be something to come along and rock the apple cart, but it just feels like the market wants to go up."
Other actively traded stocks included consumer products maker Procter & Gamble, which posted a quarterly profit in line with estimates and raised earnings guidance.
Colgate-Palmolive the maker of toothpaste, soaps and Science Diet pet food, said Tuesday its fourth-quarter profit rose 11%, with strong revenue growth across divisions.
Drugmaker Wyeth said fourth-quarter profit rose 17%, driven by sales of antidepressant Effexor and childhood infection vaccine Prevnar. Net income grew to 63 cents a share. Analysts surveyed by Thomson Financial were expecting profits of 71 cents a share.
Investors appear to be wary of making big bets on stocks before the Fed's statement on the outlook for rates expected Wednesday afternoon.
"The market is in stand-by mode. Outside of earnings, there's nothing to really shake investors out of their seats," said Andre Bakhos, president of Princeton Financial Group. "The apprehension out there stems from the fact that people want to see the Fed clear out the rate picture."
The Fed's Open Market Committee is expected to leave the fed funds rate unchanged at 5.25% at the end of the two-day meeting on Wednesday.