Stocks turned negative even as oil tumbled and the dollar strengthened.
Major indexes all gained off the opening bell as oil slid more than $2 a barrel below $112. But the gains were muted by steep drops in energy and commodity stocks. The Michigan consumer survey also showed an August reading at 61.7, below expectations of 62, though it did reflect lessening fears of inflation. The Dow and S&P were narrowly positive after an hour of trading while the Nasdaq moved a few points to the minus side.
The dollar surged to a six-month high against the euro, with jitters on shrinking euro area economic growth taking the upper hand.
Goldman Sachs abandoned its bearish stance on the dollar, saying the greenback’s long-term downtrend has ended and its undervaluation could lead to a substantial improvement in the U.S. balance of payments position.
Gold slipped below $800 an ounce for the first time since December 2007 as a firmer dollar and weak oil prices robbed the metal of its appeal as an alternative investment.
Oil also declined on fears of reduced global demand.
OPEC cut its demand forecast and said supply levels were adequate, indicating a more comfortable relationship between the two key market dynamics. The organization also said the strengthening dollar, reduction in global tensions and demand curbs suggest a bearish outlook for oil.
"It's all in the dollar," Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vt., told Reuters. "These falling commodity prices are just exactly what the Fed needed, exactly what the U.S. economy needs here."
Elsewhere in the markets, bond insurers continued their dramatic turnaround, as MBIA and Ambac spiked after Standard & Poor's affirmed its AA credit rating on the two companies and said further downgrades were unlikely.
MBIA had been off 54 percent and Ambac 83 percent in 2008 after the subprime mortgage market collapsed and borrowers began defaulting on securities the two insurers backed.
A host of other financials were set to benefit as well, including Dow leader Citigroup and Lehman Brothers after investor George Soros increased is stake in the investment bank.
Retail Earnings Disappoint, But Shares Rise
At the same time, more weak earnings reports from retailers served as a reminder of headwinds for the consumer, yet shares showed gains.
Earnings from retailer JC Penney narrowly beat estimates, but the company expected lower third-quarter sales, and its shares fell. More earnings weakness came from teen clothing retailer Abercrombie & Fitch , which also dropped on disappointing earnings that reflected a decrease in sales at stores open at least a year.
Earnings after the bell Thursday from high-end retailer Nordstrom's showed a 21 percent drop in profits, while Kohl's net income also fell but topped analyst expectations.
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In the financial sector, Merrill Lynch has frozen hiring until the end of the year and the investment bank will avoid paying UK taxes for decades after it charged $29 billion of losses to its London-based subsidiary, the Financial Times wrote.
Asian stocks closed mixed on fears of a global slowdown, while in Europe banks and pharmaceuticals were pulling stocks higher.