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Stocks Shave Earlier Gains; Alcoa Jumps

Stocks pared their gains, but were still higher Monday after China said it would allow its currency to appreciate against the dollar, a move that could provide a boost for U.S. manufacturers, exporters and commodities.

The Dow Jones Industrial Average was up almost 50 points, led by Alcoa, American Express, and GE , after logging its second straight up week, and in fact turned positive for the year.

Overall, multinationals were at the front of the pack after the yuan news as it boosts buying power in China.

The S&P 500 was higher, but the Nasdaq was slightly lower. The CBOE volatility index, widely considered the best gauge of fear in the market, was around 24.

Despite the market's recent gains, some experts said stocks are unlikely to continue the upward trend.

"I think this is a definite fake rally," said Todd Schoenberger, managing director of LandColt Trading and warned that equity investors need to be cautious.

"I also don't see a positive earnings season because so many people are out of work and what's been happening in Europe is not going to have a positive impact," he added.

Materials and energy sectors rose after gaining strength from firmer metal and oil prices on expectations that demand from China will increase. The yuan surged to its highest in five yearsfollowing the news, which also encouraged investors to snap up riskier assets.

"Alcoa's [stock surge] strengthens the argument that there is indeed a global economic recovery taking place," said Schoenberger.

Shares of U.S. Steel and AK Steel jumped almost 5 percent.

The peg had made China the target of criticism since China’s decision to lock in 2008, as the international community felt Beijing has enjoyed an unfair trade advantage during the global credit crunch.

Oil rose more than $1 to over $78 a barrel while gold prices eased off its record highsto below $1,255 an ounce.

Bank stocks were higher, even after Goldman Sachs slashed its earnings forecast for the group, citing a challenging trading environment. Goldman now expects U.S. bank earnings to be down about 20 percent in the second quarter from the first.

Bank of America was up more than 1 percent. JPMorgan and Citigroup were also higher.

Visa and MasterCard jumped more than 5 percent after Rep. Barney Frank said he will seek to keep the the cap on debit card "swipe" fees that was approved by the Senate.

Walt Disney shares rose as the company’s “Toy Story 3” opened with a record $109 million in ticket sales, according to Hollywood.com Box Office.

And Dell rose following news that the computer maker is in talks to use Google's Chrome operating system on its laptops.

BP shares slipped following news that the worst-case scenario rate of oil leakage from BP’s ruptured well is approximately 100,000 barrels per day, according to an internal company document — far higher than the US government’s estimate of 60,000 barrels per day.

The oil giant also said the cost of its response to the spill had hit $2 billion and that it had paid out $105 million in damages to those affected by the disaster.

Some M&A news also gave investors cause for optimism: Food maker Ralcorp agreed to buy American Italian Pasta in a deal valued at about $1.2 billion. And Canadian drug maker Biovail and Valeant Pharmaceuticals have agreed to merge.

The earnings calendar is light, with the latest financial results from Sonic and Steelcase expected after the close.

Walgreens and Adobe are expected to report earnings on Tuesday.

Meanwhile, Saudi Arabia is holding more than double the amount of goldas previously thought, according to new estimates that illustrate to the resurgence of the precious metal as part of emerging economies' reserves. The discovery could fuel the rally in the price of gold, which hit a nominal record high above $1,260 an ounce on Friday.

In IPO news, electric car maker Tesla's IPO is expected to price between $14 and $16 a share.

Six Flags Entertainment (formerly Six Flags, Inc.), the world's largest regional theme park company, started trading on the New York Stock Exchange under the symbol at the market opening.

This Week:
TUESDAY: Existing-home sales; 2-yr note auction; Flash Crash hearing; 2-day FOMC meeting starts; primary runoff elections; Earnings from Walgreen and Adobe
WEDNESDAY: Weekly mortgage apps; new home sales; weekly oil inventories; 5-yr note auction; FOMC interest rate decision; Galleon hearing; Earnings from Nike and Bed Bath & Beyond
THURSDAY: Durable goods orders; weekly jobless claims; 7-yr note auction; iPhone 4 on sale; Yahoo shareholders meeting; Earnings from Lennar, Oracle and Research In Motion
FRIDAY: Final read on Q1 GDP; corporate profits; consumer sentiment; XTO shareholders meeting on Exxon buyout

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