Stocks closed higher after another jittery session, helped by expectations of another Fed rate cut and an economic stimulus package from the federal government.
The markets got a lift in late trading after the House passed a $146 billion stimulus package aimed at reviving the sputtering US economy. The stimulus plan includes tax rebates for individuals and breaks to encourage business to invest in new equipment.
The passage of the bill, which now goes to the Senate, came a day ahead of a hotly anticipated Fed interest rate cut that had given Wall Street mild gains earlier in the day.
The Federal Open Market Committee will decide Wednesday whether to cut rates again after a surprise three-quarter point reduction a week ago. Fed fund futureshave indicated a near-certainty of a half-point cut, but unexpectedly positive economic signs Tuesday fueled speculation the cut could be less.
"I think all of it is just going to play itself out," said Kevin Kerr, an analyst at Resource Trader Alert. "The Fed right now is in danger of placating the market too much. If they do too deep a cut it's going to send a signal that they're desperate. This is a real fine line to walk right now."
Economic reports that showed consumer confidence and manufacturing at higher-than-expected levels created a jittery atmosphere among those looking for an aggressive rate cut.
The tepid movement in the market underscored how volatile Wall Street is in anticipation of tomorrow's Federal Open Market Committee meeting.
"I don't remember any recent meeting where there was so much uncertainty," Kerr said. "This is a tough call. There's no good answer for (Fed Chairman Ben) Bernanke. I think the (half)-point cut is the one thing that's going to keep the market where it is. Anything less is going to disappoint."
The gains in manufacturing helped boost industrial stocks, including airplane maker Boeing and heavy equipment manufacturer Caterpillar.
But techs languished, with Google losing as much as 2.7 percent as the company prepares to release earnings Thursday, and Yahoo!, whose viability has been repeatedly questioned, well lower.
There was more bad news for housing, with the S&P home price index showing a largest-ever 8.4 percent price decrease in 2007. But hopes for a rate cut again boosted builder stocks. Pulte Homes led the sector to the plus side, with the stock up more than 28 percent in 2008.
Earnings Stay Active
Earnings season continues in full swing, with companies reporting through the day.
One of the big winners was Lexmark, a Lexington, Ky.-based printer manufacturer that smashed expectations and saw its shares soar.
Cardinal Health beat expectations and saw shares surge, even though the health care products and services provider lowered its outlook. Also in health care, Zimmer Holdings gained sharply after posting higher fourth-quarter profit, thanks to increased sales of artificial hips and knees and dental implants.
Leaders of the Dow industrials included AT&T and Alcoa, while Walt Disney paced the laggards after Citi Investment downgraded the company over worries the sagging economy would diminish visitors to theme parks.
National bank stocks moved higher after Bank of America said it would proceed with its acquisition of Countrywide Financial despite the latter posting earnings sharply lower than analyst estimates. JP Morgan also was among the sector leaders.