Wall Street shook off geopolitical fears about possible oil disruptions in Russia and slipped back into positive territory, continuing last week's rally despite continued banking fears.
The major indexes turned positive after fending off an oil threat from the war between Russia and Georgia. Continued fighting in the area earlier pushed oil prices higher, but gains were reversed amid a persistent dollar rally and news that earlier reports of a pipeline destruction were unfounded. Oil was off more than $1 a barrel, below $114, as noon approached.
Apple paced tech gainers after company CEO Steve Jobs told the Wall Street Journal that iPhone users had downloaded more than 60 million programs for the smartphone since the company opened an online software marketplace last month.
Tech stocks got a boost from tiny Verichip, which declared a special $1.35 dividend that sent shares soaring, while Amazon also posted solid gains after Citigroup said the company's Kindle book reader sales were stronger than expected.
Meanwhile, Fannie Mae shares faced pressure after an analyst at FBR Capital Market said the mortgage giant would need to raise $5 billion to $10 billion more in capital to strengthen its balance sheet. Conversely, Fox-Pitt said Fannie would have to undergo some $54 billion in losses over the next six quarters for its minimum capital requirements to be endangered.
The financial sector's woes are far from over, as five of North America's largest credit unions are reporting big paper losses on mortgage-related securities, a sign that housing-market distress is spreading even to the most risk-averse financial sectors, the Wall Street Journal reported.
The sector was broadly lower as concerns over the mortgage industry continued to weigh on the market.
Fannie's chief competitor, Freddie Mac also saw shares dive after Standard & Poor's slashed the preferred stock ratings for both government-sponsored enterprises. National City also dropped on reports that it was the subject of an "informal" Securities and Exchange Commission inquiry.
Conversely, home builders were rallying after the sector reported earnings that some saw as a possible bottom in the market. Hovanian Enterprises led gainers.
Energy stocks held the S&P back from broader gains, with the biggest losers being Massey Energy and Peabody Energy as the commodities trade continued to unwind.
Consumer stocks were among the big winners of the day, with Wal-Mart leading Dow gainers. The biggest drag on the bluechip index was American International Group.
In merger and acquisition news, United Parcel Service played down talk that it was in negotiations to buy Dutch rival TNT for as much as $15 billion, calling the speculation a "rumor."
GATX is offering more than $3 billion for CNBC parent General Electric's rail car leasing business, a source familiar with the discussions told Reuters, adding that GATX is the leading bidder for the unit and negotiations are ongoing.
In earnings news, over the weekend Warren Buffett's Berkshire Hathaway reported net earnings of $2.88 billion in the second quarter of this year, down 7.6 percent from 2007's second quarter.
Shares of Sysco gained after the food distributor surprised Wall Street with an 12 percent earnings gain.
Asian stocks closed mixed while European shares were higher on the back of energy stocks boosted by the rise in crude.