Stocks closed slightly higher as investors waited to see whether tonight's speech by Federal Reserve Chairman Ben Bernanke would signal further cuts in interest rates.
Bernanke will discuss the national and regional economy tonight at 6:45 pm New York time in a speech that will be carried live on CNBC.com
The market bounced around all day amid mostly negative economic news, including disappointing results at Sears Holdings. The listless session followed a huge two-day rally that was triggered by growing expectations of more interest rate cuts.
Fed Vice Chairman Donald Kohn strongly hinted on Wednesday that the central bank was prepared to ease rates to keep the economy from falling into a recession. Investors are hoping the Bernanke will reinforce that view in his speech tonight.
"I think we're setting up for a little bit of a relief rally in December," said Chris Orndorff, managing principal and head of equity for Los Angeles-based money manager Payden & Rygel. "I don't know if we're going to get back to the old highs, but what the market is showing us is the correction which occurred in November that was led by the bond market and financial service companies is largely over."
The market had some sizeable obstacles to overcome, though, as a basket of economic reports and earnings statements painted a pessimistic look ahead for the US economy.
Oil surrendered almost all gains after surging by more than$4 a barrel to over $94 when an explosion and fire at a terminal in Minnesota prompted the shutdown of nearly a fifth of US crude imports. Firefighters battling the blaze were able to get close enough to reopen two of the pipelines, causing oil prices to sink back towards even.
Shares gained, though, at oil majors including ExxonMobil, Chevron and ConocoPhillips.
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Disappointing results at Sears Holdings foretold substantial losses posted at retailers including by Abercrombie & Fitch and Bon-Ton , whose shares plunged on sharply lower earnings and a poor fourth-quarter outlook.
Shares of MGI Pharma, which makes cancer therapies, surged when the company said it has hired bankers to "evaluate possible strategic alternatives," generally code for a company putting itself up for sale.
But continued issues over weakness in the credit industry, including fresh concerns that some banks issued mortgages with high loan-to-value ratios would face further pain, pushed financials down. The Bush administration lowered its economic forecast for 2008in large part due to fears that the credit crunch will hurt more than expected.
"Year-end is critical here," Larry Goldstone, president and CEO at Thornburg Mortgage, told CNBC. "Everybody is managing a balance sheet, they're managing capital ratios, so things are very, very tight right now."
Of Dow components, cigarette maker Altria Group posted the strongest gain, building on momentum generated during this week's rally.
On the tech-heavy Nasdaq, Regeneron Pharmaceuticals exploded upwards after it announced it was expanding its partnership with Sanofi-Aventis. American Woodwork was among the index's biggest losers after it lowered fourth-quarter guidance.
In economic data, gross domestic product met expectations, while new home sales posted an unexpected gain of 1.7 percent in Octoberagainst estimates of a decrease. Also, weekly jobless claims rose much more than expected.
"This is a classic mid-cycle slowdown, which has the chance to dip into recession but it's not there yet," said Jason Pride, director of research at the Philadelphia-based Haverford. "We actually think it's not going to get to that point unless things really start snowballing. We think the chances still favor that we stay out of recession."
Treasurys rallied after two days of losses as banking weakness and the economic signals shunted traders to safe-haven bonds.