Stocks closed mixed for the second straight session but the Dow closed at a record high on tame inflation data.
"Any time we get a number that shows less inflation and indicates interest rates may come down, that has a positive effect on the market," said Ted Weisberg, president of Seaport Securities.
"We had some economic numbers this morning that were blah at best -- certainly good from an inflation standpoint, but the economy is slowing," Weisberg added.
Disappointing news from the housing industry and weak earnings reports from two major retailers created investor uncertainty as the S&P 500 ended flat and the Nasdaq continued to be the weak link among the major indexes with a 0.8% decline.
The Dow Jones Industrial Average rose 37 points, closing 22 points above its previous record close but well off triple-digit gains made earlier in the session.
"It's just the ebb and flow of the daily market," said Daniel McMahon, head of listed trading at CIBC World Markets. "It's still acting well, and it's still all about M&A and corporate stock repurchases. People need to put money to work -- that's what's driving the market higher."
The consumer price index rose less than expected in April, the Labor Department said Tuesday morning, an indication of an improving inflation environment that raised investor hopes the Federal Reserve will cut interest rates. The CPI index rose 0.4% in April, below economists' consensus estimate of 0.5%.
"I was worried about inflation, but the PPI and CPI numbers are looking pretty good," said Darin Richards, chief investment officer at AKT Wealth Advisors. "If we can maybe get another month or two under our belt, I think we will be well on our way to having contained inflation and give the Fed some leeway."
Housing sentiment remains poor, according to a recent survey conducted by the National Association of Home Builders. The NAHB confidence survey fell to its lowest reading in 15 years.
Meanwhile existing home sales rose at an annual rate of 6.4 million units last quarter, down 6.6% from a year ago, according to the National Association of Realtors. The national median existing single-family home price was $212,300, down 1.8% from a year ago.
Breadth was negative on the NYSE with decliners outpacing gainers by a three-to-two margin. Basic materials stocks such as Alcoa made up the top-performing S&P 500 sector, which rose more than 1%. Tech stocks continued to trade lower, however, leading downside movers.
Meanwhile, two major retailers posted disappointing quarterly results, sending consumer discretionary stocks lower.
Dow component Wal-Mart Stores met quarterly earnings expectations but sales came in lighter than expected. Last week, the world's largest retailer reported the weakest April same-store sales in its history.
Home Depot, also in the Dow, reported earnings below analysts' forecasts.
Shares of Agilent Technologies rose after the electronic test equipment maker reported second-quarter earnings a penny above estimates and issued quarterly guidance above analysts' expectations.
Reuters Group and Thomson agreed on terms for a merger to create one of the world's largest financial news providers. The cash and stock transaction values Reuters at $17.2 billion.
New York light sweet crude futures rose 1.1%, ending above $63 a barrel on the New York Mercantile Exchange. It was the fourth straight gain for the commodity and highest close since May 3.
Europe Closes Higher But Asia Tumbles
European stocks finished higher after the release of benign inflation data in the U.S. but shares in Asia closed lower after weak economic data in Japan pulled down the Nikkei.
London's FTSE-100 , the Frankfurt DAX and the Paris CAC-40 all closed higher.
U.K. construction company Hanson agreed to be bought by Germany's HeidelbergCement for $15.8 billion. Shares of Hanson rose, while HeidelbergCement was little changed.
German utility RWE reported a first-quarter operating profit of $3.8 billion, topping market expectations, while Deutsche Post reported operating earnings at the top end of analysts' expectations for the first three months of the year.
The yen matched a three-month low against the dollar on the weak machinery orders, a barometer of corporate capital spending, which underscored widespread expectations Japan's central bank will modestly raise interest rates.
Tokyo's Nikkei 225 Average fell to a two-week closing low, led by industrial robot maker Fanuc, as weak machinery orders data rekindled concern that corporate capital spending may be losing steam.
Investors sold shares of drugmakers Eisai and Daiichi Sankyo following downbeat earnings forecasts from both companies. The construction sector was a major loser with shares of Taisei and Obayashi down after the builders forecast profit falls for the year to next March.
Seoul shares ended 1% lower -- the biggest decline for the benchmark Kospi fall in a month -- as worries a recent record-setting rally had come too quickly led investors to lock in gains in outperformers such as Hyundai Heavy Industries.
China's Shanghai Composite Index was over 3% lower as some investors took profits after the market's strong recent gains, while the Bank of Communications made a strong debut, surging 80% in its first day of trading.
Hong Kong's Hang Seng Index retreated from another record hit earlier in the session riding the momentum of Monday's rally fueled by news that China had relaxed restrictions on overseas stock investment.