Stocks Advance as Stimulus Fuels Optimism

Stocks eked out a gain Tuesday as the massive amount of stimulus being thrown at the economy has started to lift the mood on Wall Street.

Notably, traders were enthused with the Treasury plan to buy mortgage-backed securitiesand the subsequent drop in mortgage rates.

"Sentiment is changing a little bit," said Nadav Baum, managing director of investments at BPU Investment Management in Pittsburgh. "I think the panic is subsiding and people are starting to look at stocks again — and credit markets — based on fundamentals and that's a good thing."

"We may be able to have a Santa Claus rally," Baum said.

The Dow Jones Industrial Average and S&P 500 index extended their winning streaks for a third day, gaining 0.4 percent and 0.7 percent, respectively.

The Nasdaqshed 0.5 percent, however, amid a selloff in big-name techs.

Internet search giant Google is expected to slash the number of contract workers it uses, according to a report from the Wall Street Journal. Google shares bounced 9.6 percent.

Shares of network-equipment maker

Cisco

fell 6 percent as the technology bellwether announced a four-day shutdown to cut costs — the first time it's ever had to take such a measure.

Research In Motion fell 8.3 percent, while Microsoft lost 3.4 percent and Apple fell 2.3 percent.

The Fed announced another major effort to triage the U.S. financial system: a $600 billion program to buy mortgage-related debt and securities and a $200 billion facility to buy consumer debt securities.

Meanwhile, President-elect Obama was back in front of the camera today with a fresh effort to calm the markets, announcing his budget officials and promising to cut spendingto offset the costs of stimulus efforts.

And, Baum said, it seems to be working.

"He's been on top of things quickly," Baum said. "He's saying, 'Hey, we understand this thing. We're all over it. It's our No. 1 priority' and I think that's helping the market."

The day's economic news was mixed: GDP was revised to show the economy shrunk 0.5 percentin the third quarter from the prior estimate of a 0.3-percent contraction, in-line with economists' expectations. This was the second of three readings on Q3 GDP. A gauge of consumer confidence improvedin November, while home prices plunged by a record 17.4 percentin September.

Today's gain comes on the heels of a two-day rally in which the Dow gained nearly 900 points. It was the best two-day performance by the market since the rebound after the 1987 crash. Despite the rally, many investors remained wary of further weakness to come.

Citigroup shares rose again, ending at $6.08 a share, after clawing back most of last week's losses on Monday following news that the government plans to guarantee over $300 billion of the bank's troubled assets and inject $20 billion from the TARP into the bank.

One investor welcoming the government intervention and stock turnaround was Saudi Prince Alwaleed bin Talal, who is building a 5 percent stake in Citi and told CNBC he has "full confidence" in the group's CEO Vikram Pandit.

On the earnings front, Dollar Tree reported its profit jumped 20 percent, topping forecasts, as consumers flocked to staples like food and cleaning supplies. The dollar-store chain also benefitted from more consumers trading down from more expensive goods and stores.

DR Horton reported its loss widened and said it expects this fiscal year to be even more challenging than 2008. But shares jumped 38 percent as traders were enthused with the homebuilder's continued focus on maintaining a cash cushion.

Still to Come:

WEDNESDAY: Weekly mortgage applications; durable-goods orders; weekly jobless claims; personal income/spending; Chicago PMI; Reuters/U. of Mich. consumer sentiment; new-home sales; weekly oil and natural-gas inventories; Earnings from Deere, Tiffany
THURSDAY: All US financial markets closed for the Thanksgiving holiday
FRIDAY: NYSE closes at 1pm

Send comments to cindy.perman@nbcuni.com.