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Stocks Gain Ahead of Fed Meeting; HP Falls

Stocks gained Monday amid light volume as investors hung back to await news from the Federal Reserve meeting on Tuesday. Shares of Hewlett-Packard plunged nearly 8 percent.

The Dow Jones Industrial Average rose 45.19 points, or 0.4 percent, to 10,698.75.

Most of the day the blue-chip index stuck to a fairly narrow trading range, led by Cisco , McDonald'sand IBM .

Shares of Dow component Hewlett-Packard tumbled following former CEO Mark Hurd's resignation late Friday, which occurred after an investigation found he had falsified expense reports to conceal a relationship with a female contractor.

The S&P 500rose 0.6 percent to close at 1,127.79, while Nasdaq rose 0.8 percent to close at 2,305.69.For both indexes, the gains were the first in three trading days. The CBOE volatility index, widely considered the best gauge of fear in the market, rose above 22.

Shares of Verizon and Google rose as the company held a joint press conference to discuss new Internet traffic rules.

At the Federal Reserve meeting Tuesday, many expect officials will keep rates near zero for "an extended period." The central bank is expected to release a statement at 2:15 p.m.

Investors are wondering if Fed officials are more concerned about a recovery or if the economy is heading toward deflation and slower growth. Some expect the Fed will renew purchases of mortgages and Treasurys to lend the economy support.

If the Fed takes this action, markets will be reassured, said Bruce McCain, chief investment strategist at Key Private Bank.

"It simply gives us a policy indication that they recognize the weakness they’ve been talking about and are providing a little bit of extra support for the economy when it may be needed," McCain said.

McDonald's reported same-store sales globally rose 7 percentand were up 5.7 percent in the U.S. after strong sales for new drink products helped increase business. McDonald's results boded well for consumer stocks, which were slightly higher overall.

Banks were trailing with JPMorgan Chase and Bank of America among those leading financials lower.

Goldman Sachs rose slightly after reporting it had $100 million in trading losses in three days in the second quarter. The investment firm had 10 days of trading losses in all, although its trading operations were mostly profitable in the period. Morgan Stanley reported 11 days of trading losses in the second quarter.

As second quarter earnings season nears a close, Goldman Sachs issued a report saying a weak U.S. economic forecast has prompted the firm to raise its 2010 EPS estimate for the S&P 500 to $81 from $78, but to lower its 2011 EPS estimate to $89 from $93. Nearly 90 percent of firms have reported second-quarter earnings and 75 percent beat expectations.

Goldman also lowered its 2010 forecast for the S&P 500 index to 1200 from 1250. The firm's 12-month target for the S&P is 1250, about 11 percent higher than today.

Home builders rose as investors grew more comfortable that record-low interest rates would help the industry through a slow recovery. In another piece of incrementally good news, Zillow.com said Monday that fewer homeowners owed more than their homes were worth—commonly referred to as being "underwater" on a mortgage. KB Home and D.R. Horton rose more than 4 percent.

Freddie Mac meanwhile, was down more than 5 percent after posting a large loss for the second quarter. The company is requesting $1.8 billion in additional federal aid.

Apple was slightly higher after news that a company executive in charge of iPhone engineeringleft the firm weeks after complaints of poor reception on the company's latest smartphone.

Sara Lee was down modestly after the company announced Chairman and CEO Brenda Barnes is stepping down following a stroke. CFO Marcel Smits, who has been handling the CEO duties since Barnes took a medical leave in May, will continue in that role until a new CEO is named.

Research in Motion rose after a Saudi official said on Sunday that the BlackBerry maker and Saudi mobile firms were testing three servers to send communications and data through Saudi Arabia before Canada to address Riyadh's concerns over security. The Gulf state of Oman said Monday it has no plans to bar Blackberry service.

Tyson Foods said its profit nearly doubled to 65 cents a share, ahead of Wall Street estimates, but its shares fell after Goldman Sachs issued a "conviction sell" for the company.

On the New York Stocks Exchange, only 789 million shares changed hands. Advancers led decliners nearly 3-to-1.

The dollar rose against major currencies Monday ahead of the Fed meeting, while the 10-year Treasury remained unchanged to yield 2.825%. Crude oil futures prices rosefor the first time in three sessions to $81 on expectation the Fed may take more action to boost the economy.

On Tap This Week:

TUESDAY: FOMC meeting, NFIB Small Business Optimism Index, Wholesale Trade data, Treasury 3-year note auction; Earnings after the bell the bell from Disney
WEDNESDAY: MBA purchase applications, international trade data, oil inventories; 10-year note auction; Earnings before the bell from Macy's and after the bell from Cisco
THURSDAY: Dell's annual meeting, jobless claims, import and export prices, 30-year bond auction; Earnings before the bell from Kohl's and after the bell from Nordstrom and Nvidia FRIDAY: CPI, retail sales, consumer sentiment, business inventories; Earnings before the bell from JC Penney

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