Stocks ended higher after bobbing up and down throughout the session as investors weighed oil's retreat against a dismal manufacturing reading and a fresh wave of concern about banks.
The Dow Jones Industrial Average rose about 0.3 percent to close at 12063.09, while the S&P 500 gained 0.4 percent and the tech-heavy Nasdaq jumped 1.3 percent.
U.S. light, sweet crude oil slipped nearly $5, settling at $131.93 a barrel. Shares of energy stocks, including Dow components ExxonMobil and Chevron, declined.
Tech stocks led the day, with IT the best performer among 10 key S&P sector indexes and chips up 2.6 percent, as oil's descent gave a boost to tech companies and other exporters.
Intel , the world's top chip maker gained 2.6 percent and Microsoft advanced 1.7 percent.
Still, the market mood was far from upbeat.
"I think right now sentiment is still bearish," said Matt Cheslock, senior specialist at Cohen Specialists. "Everyone is hesitant to do anything."
Some money managers and strategists have suggested that the pin-pricks of light in the tech tunnel are an early indication of a market turnaround.
But Cheslock cautioned not to make too much of the tech rally. "It's somewhere other than oil to put your money," Cheslock said. "Everyone is trading on risk-management and basic principle: If tech is rallying, buy it."
The Dow Jones Industrial Average briefly fell below 12000 after the Philadelphia Federal Reserve reported regional manufacturing activity slowed more than expected in June.
Economic indicators -- especially those from June -- are being watched extra closely ahead of the Federal Reserve's policy-setting meeting next week.
AIG, helped alleviate pressure on the Dow after Citigroup raised its rating on the stock to "buy" from "hold," saying the insurer is undervalued -- even if its earnings don't grow -- and the stock is poised for a 35 percent jump in the next 12 months. Shares jumped 4.9 percent.
Initial jobless claims fell by 5,000 last week, though the four-week moving average ticked higher. Leading indicators rose for a second straight month, climbing 0.1 percent in May, the Conference Board reported.
Financials came under pressure once again amid news of more writedowns and a couple of analyst downgrades.
Treasury Secretary Henry Paulson spoke at a luncheon event, urging that, in the wake of Bear Stearns's collapse, the Fed be given new powers to regulate Wall Street.
But Paulson raised a few eyebrows on the trading floor when he said, "No company is too big to go under."
Cheslock said he and his colleagues wondered, "Does he know something we don't know?"
Meanwhile, two former Bear Stearns hedge-fund managers were arrested on charges of securities fraud and are expected to be indicted for their role in the collapse of two hedge funds that helped kick off the credit crisis last year.
Citigroup shares fell 1.1 percent after CFO Gary Crittenden told investors on a Detusche Bank investor conference call that the bank could take substantial write-downs in the second quarter.
Morgan Stanley finished off more than 1.2 percent after Oppenheimer analyst Meredith Whitney cut her earnings forecast for 2008 and 2009.
Adding to Morgan's woes, the firm is expected to take a $120 million revenue hit after a suspected rogue trader incorrectly valued his positions in the credit-derivatives market, the Financial Times reported on Thursday.
UBS fell 4.2 percent after a downgrade from Credit Suisse.
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Fifth Third Bancorp jumped 5.3 percent, rebounding from a two-day decline in which the stock lost 30 percent of its value. Ladenburg Thalmann analyst Richard Bove cut his 2008 earnings outlook for Fifth Third, a day after the Midwest bank announced plans to slash its dividend by two-thirds and raise additional capital.
It wasn't just financials that were slapped with downgrades:
Chemical products manufacturer Huntsman saw its shares tumble 38 percent after the company was downgraded by Jefferies to "underperform" from "hold" and had its price target lowered from $28 to $15.
Kraft Foods shares fell after a downgrade from UBS.
Coventry Health Care plunged 22 percent after the health insurer cut its earnings projection for the second quarter and full year.
The whole sector felt the crunch: Aetna skidded 1.8 percent and UnitedHealth lost 7.7 percent.
General Motors started the day at a 26-year low and slipped a little bit more, ending down 10 cents at $14.79. GM delayed a planned redesign of its SUVs and light trucks as auto makers grapple with plunging truck demand and shift their focus to fuel-efficient vehicles.
In merger and acquisition news, Anheuser-Busch's board plans to meet this week for the first time since rival brewer InBev formally bid $46 billion for the company, the Financial Times reported, in a signal the U.S. company may not be ready to completely reject the Belgium brewer's bid.
Looking ahead, Cheslock said the market could be primed for a small two-week rally at the end of the quarter.
"If people are going to mark up their portfolios, now is the time to do it," Cheslock said.
But, like all good things, it won't last: Cheslock expects we'll see a sell-off later this summer -- maybe in July.
MONDAY: Chicago Fed report
TUESDAY: Case-Shiller home-price index; Richmond Fed report; consumer confidence; two-day Fed meeting begins
WEDNESDAY: Mortgage applications; durable goods, new-home sales; weekly crude inventories; Fed rate decision; Earnings from General Mills, Monsanto, Bed, Bath & Beyond, Nike, Oracle and RIM
THURSDAY: Jobless claims; GDP (final) with corporate profits; existing-home slaes; Kansas City and Chicago Fed reports; ConAgra, Lennar earnings
FRIDAY: Personal income and spending; consumer sentiment; KB Home earnings
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