Stocks closed broadly higher amid continued strength in the tech sector, which gained following Research in Motion's deal to distribute BlackBerry smartphones in China, along with strong earnings reported by Apple.
"It's definitely a sector market, some of the earnings have been very good and are pushing stocks higher," said Andrew Schwarz, founder of AGS Specialists. "But outside of that, I think the financials are still dragging on the market and I don't think all the news is out there yet."
"We're in the heart of earnings season, this is an earnings-driven market right now," said Dan McMahon, head of listed trading at CIBC World Markets. "Apple helped the market go higher early this morning but you're only as good as your last one so we'll see what happens after the bell."
Alcatel-Lucent and Research in Motion announced Tuesday afternoon they will work together to distribute the latter's popular smartphones in China.
Apple said fourth-quarter earnings rose 67 percent from a year ago, blowing past expectations, as the company turned in strong sales of its Macintosh computers and iPod music players during a period when much of the focus had been on the iPhone.
Wal-Mart Stores , the world's largest retailer, said it plans capital expenditures for its current fiscal year of $14.7 billion to $15.4 billion, lower than its previous forecast.
Meanwhile, American Express said late Mondaythat third-quarter earnings rose 10 percent -- but revenue fell short of expectations.
Some traders attributed the market pullback to a reversal in crude oil prices. Oil dipped below $86 on Tuesday, giving up early gains in response to concerns about the health of the U.S. economy and further indications OPEC has already substantially raised oil output.
Light crude futures fell on the New York Mercantile Exchange.
Amgen shares gained after a Boston jury on Tuesday found that a key patent on top-selling anemia drugs is valid, blocking Roche from launching a rival medicine in the United States.
In other earnings news, Dow component DuPont also topped analysts' estimates Tuesday morning, reporting third-quarter operating earnings of 59 cents a share, ahead of the consensus of 52 cents a share.
However, Texas Instruments said late Mondayquarterly earnings grew 16 percent from the year-ago quarter thanks to strong analog chip sales. But the mobile chipmaker forecast revenue below analysts' estimates, pushing shares lower.
Countrywide Financial moved to offset worries about huge subprime writedowns by announcing a program in which it will refinance loans for borrowers facing a resetting on their adjustable interest rates.
As the market continues to seesaw, analysts expect continued volatility until the housing and credit problems stabilize.
"I look at yesterday as the dead-cat bounce. The biggest things affecting the market are still the credit crisis and housing crunch," said Matthew Tuttle of Tuttle Wealth Management.
"At the end of the day what the Fed does on interest rates and what they signal is going to be the stance going forward" will determine which way the market will move long-term."
Market instability was reflected in the earnings of handbag and accessories maker Coach, which reported higher quarterly profit Tuesday, helped by strong demand for its fall products. But concerns over the holiday retail season and a statement by Coach's chief executive expressing concern over foot traffic in the company's stores sent shares plunging.
Printer maker Lexmark reported a 47 percent decline in quarterly profit on Tuesday due to weak printer sales, sending its stock down 10 percent.
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Heavyweights AT&T, Lockheed Martin and UPS also reported earnings before the bell.
AT&Treported net income of $3.1 billion in the third quarter, a 42 percent jump from the previous year before its acquisition of BellSouth was completed. Earnings were in line with forecasts.
Lockheed said its third-quarter earnings jumped 22 percent as sales and profit rose in each of the company's four operating units.
UPS reported Tuesday a 3.7 percent increase in third-quarter profit on a modest rise in sales. The results, when one-time items are excluded, beat Wall Street expectations.
TD Ameritrade saw active trading after the discount brokerage reported a 56 percent rise in quarterly profit, above Wall Street estimates. The company said higher client assets and stock market volatility led to increased customer trading activity.
Short-dated U.S. Treasuries edged up on Tuesday as plans by Wal-Mart to scale back capital spending crimped gains in the stock market, providing a safe harbor bid in bonds and supported expectations for another benchmark rate cut next week.