Google continued to be a powerhouse on speculation that the company was considering entering the cellphone market.
Merrill Ousts CEO
Continued uncertainty over the situation at Merrill Lynch also cast a pall on the markets as the investment bank privately weighed its strategy in replacing CEO Stan O’Neal, whom the company confirmed would be retiring. Merrill said its board of directors elected Alberto Cribiore as interim non-executive chairman.
Company shares dropped as investors weighed the course Merrill would chart and grumbled over the $159 million in compensation O'Neal would take with him.
Some analysts, though, including Ranieri and Quincy Krosby, chief investment strategist at The Hartford, said investors may actually begin to gravitate towards financials now that Merrill has written down some of its subprime losses and Countrywide Financial took similar measures last week.
"Overall in the financials there's a notion that it's still not quite safe yet to get in," Krosby said. "Until we get the financials stabilized at least, it's going to be hard for the market to give us a sustainable rally.
"But we're getting much closer and I think you're going to start seeing some buying in the financials."
P&G, Colgate, Liz Report
On the earnings front,there was plenty of good news and bad news to go around, causing some substantial fluctuations in stock prices.
Liz Claiborne acted as an early drag on the market after its before-the-bell report showed lower quarterly profit, hurt by weak sales in its wholesale brand segment. But shares later reversed the early losses, turning an early 5 percent decline into a sizeable gain as company officials emphasized that results were in line with earlier forecasts and said a turnaround plan was moving on schedule.
Smith & Wesson shares, meanwhile, plunged after the company revised its earnings guidance lower due to slumping sales of its rifles and shotguns.
Elsewhere, Dow component Procter & Gamble reported results before the bell that showed its first-quarter profit rose 14 percent on strong sales growth across nearly all regions. The earnings beat analyst expectations by a penny, but investors were unimpressed.
"Overall the numbers are showing earnings that beat estimates, but the companies that aren't beating estimates are really coming in and surprising to the downside, especially for the guidance," Krosby said. "That's something the market is punishing."
Colgate-Palmolive also posted better-than-expected earnings. The maker of Colgate toothpaste, Mennen deodorant and Hill's Science Diet pet food said earnings excluding items were 86 cents a share. Analysts, on average, were expecting 85 cents, according to Reuters Estimates.
Germany's BASF , the world's biggest chemical company, failed to impress investors even though it raised its full-year profit outlook after strong demand for chemicals and farming products boosted quarterly profits.
U.S. Steel said third-quarter profit fell 35 percent because of weaker tubular steel prices and lower shipments in its European business, sending shares lower.
Other companies reporting earnings included MGM Mirage , which reported higher quarterly profit off the opening of its new casino in Biloxi, Miss., and Qwest , whose shares plunged after the company reported a jump in third-quarter net income due to a $2.15 billion tax benefit but a decline in revenue because of a 19 percent drop in traditional wholesale services.
WellCare Health Plans saw its shares tumble further after a Goldman Sachs analyst questioned in a research note whether the company used transactions with an offshore firm to cut its profit margin.
Analyst Matthew Borsch repeated concerns raised earlier in the year about whether WellCare used the transactions in an effort to appear less profitable to officials with influence on reimbursement rates. WellCare has been in a tailspin since more than 200 state and federal agents raided its Florida headquarters last Wednesday, though no details have been released regarding the probe.
Elsewhere, U.S. light sweet crude oil plunged more than $3 from its record high.
The dollar languished after setting new lows the previous day against a basket of foreign currencies. Treasuries also fell amid the rate-cut uncertainty, while gold backed away from 28-year highs reached Monday.