Stocks turned slightly higher Tuesday as investors weighed positive earnings from two of the market's most influential companies against worries about the economy.
Major indexes spent the first two hours mostly in negative territory but drifted above breakeven on the strength of housing and commodities stocks. The lackluster trading comes a day after the market posted its biggest gain since June 1.
Dow component Home Depot gained more than 1.5 percent and home builder Hovnanian Enterprises moved up nearly 4 percent. The SPDR S&P Homebuilders ETF posted solid gains for the morning as the market clawed to positive ground.
Larger-than-expected gains in producer prices and retail salesfor June presented conflicting signals on the economic front. Producer prices rose 1.8 percent on the strength of autos and energy sales, while retail sales were up 0.6 percent primarily, also on the energy-auto movement.
An additional economic report showing a 1 percent drop in business inventories also was higher than expected but seemed to have little effect on the markets.
The economic reports triggered expectations of inflation, and at least some of the late-morning pop in stocks was attributed to short-covering.
"All the inflation bonds are acting very well today because it feels like the market is buildig in some inflationary expectations," said Dave Lutz, managing director of trading for Baltimore-based Stifel Nicolaus.
The iShares Barclays TIPS ETF edged higher though it was off its peak. The fund is up about 5 percent in 2009.
Hotel stocks, including Starwood, helped push the market higher.
"We basically have a consumer reflation trade coming out right now," Lutz said. "This is typical of a short-covering move."
Earnings season kicked into full gear as both Goldman Sachs and Dow stock Johnson & Johnson posted numbers that surprised to the upside.
Johnson & Johnson posted earnings of $3.2 billion that beat expectations, while also affirming its full-year outlook, sending shares higher.
Goldman shares inched up following its earnings report, even though the numbers easily beat analyst estimates. The company reported net income for common shareholders of $2.7 billion, or $4.93 a share, compared with $2.05 billion, or $4.58 a share, in the closest year-earlier quarter.
The morning's moves also were limited after Sun Microsystems said it expects fiscal fourth-quarter results below Wall Street estimates.
The server and software maker, which is being bought by Oracle in a $7.4 billion deal, predicts a loss of 24 cents to 34 cents per share in the quarter ended June 30. Excluding one-time items, Sun expects a loss of 6 cents to 16 cents per share.
In the financial sector, the government may help troubled commercial lender CIT Group get back on its feet. CIT shares surged on the news.
Also, Prudential Financial Group gained on an upgrade to "overweight" from JPMorgan.
Stocks were supported as well by a jump in the price of crude oil , which on Monday fell toward a two-month low. Commodities, particularly precious metals, were mostly stronger; the SPDR Gold Trust ETF was up nearly 1 percent, while the iPath Crude Oil ETN gained 1.6 percent early on.
CNBC.com-parent General Electric led Dow gainers as the company prepares to report earnings Friday; Travelers represented the index's biggest loser.
In deal news, Noven Pharmaceutical is being sold to Japan-based Hisamitsu Pharmaceutical Co. for about $428 million in cash.
The tender offer of $16.50 per share marks a 22.4 percent premium to Noven's closing price of $13.48 Monday. Noven shares jumped a corresponding level.
At 10 am, the government releases May numbers on business inventories, with consensus forecasts calling for a drop of 0.8 percent.
After the closing bell, investors will be focused on earnings releases from computer chip giant Intel, smaller chipmaker Altera, and KFC, Taco Bell and Pizza Hut parent Yum Brands .
Dell will hold an analyst meeting this morning, but is already signaling what issues it may address: the computer maker says it's seeing stabilization in its product markets, though customers are still deferring some IT purchases.
Shares of some big-box retailers such as Wal-Mart and Costco fell as surveys from Redbook and Goldman Sachs both showed retail chain sales down in the first week of July.
Trading was fairly brisk in the first half-hour on the New York Stock Exchange, with about 150 million shares changing hands. Market breadth was neutral, with gainers edging out losers.