Stocks ended modestly higher Wednesday as the dollar rose and Treasurys hit six-month highs on fears the economy would heat up under the tax plan under consideration in Washington.
The Dow Jones Industrial Average rose 13.32 points, or 0.12 percent, to close at 11,372.48 after fluctuating much of the session.
Bank of America , JPMorgan and American Express gained, while McDonald'sand Boeing declined.
The S&P 500 rose 4.53 points, or 0.4 percent, to 1,228.28, while the tech-heavy Nasdaq gained 10.67 points, or 0.4 percent, to 2,609.16. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell below 18.
Among key S&P sectors, materials, utilities and energy fell, while financials and technology rose.
Investors had their eyes on the dollar , which has been gaining against a basket of currencies, as well as Treasury yields, which rose as the proposed extension of tax cuts sparked fears of inflation. Stocks and the dollar have been moving in opposite directions of late.
An auction Wednesday of $21 billion in reopened 10-year Treasurys led to a disappointing 3.34 percent yield, as the price fell to 94.125. By session's end, the 10-year Treasury recovered a little, but it still closed down 18/32 points, at 94 27/32, for a yield of 3.236 percent, the highest for the security since June 21.
The plunge in Treasury prices also drew investors away from precious metals, as prices for gold and silver prices fell sharply. Gold fell nearly 2 percent and traded below $1,380 an ounce before recovering slightly, while silver fell more than 5 percent.
Oil prices slipped below $88 as the dollar rose, the U.S. Energy Information Administration reported a sharp rise in fuel inventories.
Energy stocks followed oil lower, led by Valero Energy , Nabors Industries , and Occidental Petroleum .
Stocks have been wavering for most of the session as investors wait for more direction on a compromisereached between President Obama and the Republicans on extending Bush-era tax cuts. Senate Democratic Leader Harry Reid said the plan could move more quickly than expected.
There were also jitters that China will raise interest rates before the year-end. The worries were spurred by rumors that the increase in the consumer price index topped 5 percent in November.
“The enthusiasm was tempered a bit today by China potentially tightening,” said Dan McMahon, director of equity trading at Raymond James. “That’s what's taken a bit of the bid out of the market.”
Still, McMahon said the trend is the market is to move higher, given signs of strength in the economy and the Federal Reserve’s efforts to boost the economy through bond purchases. Additionally, a “fair amount of cash” remains on the sidelines, McMahon said.
European shares closed at a 26-month highamid expectations that concerns about the euro zone debt crisis will abate and financials will perform well.
AIG fell before trading was halted on news the insurer will repay the Fed in cash for all amounts owed under its credit facility. The stock was down earlier on concerns the stock would be diluted through a secondary offering of one-fifth of the company.
Financial stocks were among the best performers Wednesday, as a steeper yield curve—between short-and long-term bonds—benefits banks, which borrow at low short-term rates and lend at higher long-term rates.
While the big banks, including Bank of America and JPMorgan, Wells Fargo , all rose, regional bank stocks also rose. Fifth Third Bancorp , Regions Financial , SunTrust Banks and KeyCorp all rose strongly.
But the rise in the dollar pressured materials stocks. Weyerhauser , Freeport McMoran , US Steel and DuPont all sank.
Costco released stronger-than-expected quarterly profit results and the retailer said revenue and traffic saw improvement at its U.S. stores, with the weaker dollar helping international sales.
Home Depot rose after the home improvement retailer raised its outlook for 2010 sales and profits for the second time as homeowners slowly return to renovation projects.
But McDonald's dragged down the Dow after the fast-food chain reported a smaller-than-expected rise in same-store global salesin November, as demand weakened in the U.S. and Japan.
Fortune Brands gained after announcing plans to split into three separate businesses, giving investors a pure-play in spirits, home and security, and golf. Fortune Brands makes Jim Beam scotch, Moen faucets and Titleist golf balls.
And 3M shares rose despite a downgrade by Goldman Sachs from "buy" to "neutral," saying relative valuation is less compelling.
Johnson & Johnsonlaunched its $2.3 billion bid for Crucell, a Dutch biotech company, despite opposition from some investors and production problems with a Crucell vaccine.
Orexigen Therapeautics skyrocketed after news the biopharmaceutical company's weight-loss pill, Contrave, was backed by a panel of experts advisers to the FDA.
In tech news, Salesforce.com advanced after the tech firm said it has agreed to buy privately held cloud-platform company Heroku for up to $249 million to expand its presence in cloud computing related to social and mobile applications. In addition, at least five brokerages raised their target prices on the company.
Intel fell despite news the tech company has resumed stock buybacksafter a year hiatus. CEO Paul Otellini also said Intel chips were being selected for more tablet computers.
Netflix reached a deal with ABC to add more television shows to its streaming service, including popular series such as "Grey's Anatomy," and "Ugly Betty." Shares slumped after Jefferies cut the movie and TV distributor to "hold" from "buy."
Men's Wearhouse shares tumbled more than 10 percent after the specialty retailer said it forecasts a fourth-quarter loss wider than estimates. This comes after women's clothing retailer Talbots said sales could fall during the crucial holiday season and that it might report a fourth-quarter loss from continuing operations. Shares of the women's clothing retailer were trading lower for a second day after plunging more than 20 percent on Tuesday.
Online retailers were mixed Wednesday despite a 12 percent rise in cyber shoppingfor the first 35 days of the holiday shopping season, according to Comscore. Internet-only sites Amazon slumped, while eBay and Overstock.com rose. Other retailers were mixed as well as Best Buy rose, but several apparel retailers slipped, including Abercrombie & Fitch and Limited Brands .
Shares of Starwood Hotels fell after the owner of Sheraton and W hotels backed its 2010 outlookand outlined a strategy that will require sales of some hotels.
On the IPO front, shares of two Chinese companies soared in their U.S. stock market debuts.
Two Chinese companies had stellar stock debuts Wednesday. Online video company Youku.com opened at $27, 110.9 percent above its $12.80 IPO price. And shares of online retailer E-Commerce China Dangdang opened at $24.50, 53.1 percent above their $16 IPO price.
Volume on the consolidated tape of the New York Stock Exchange was 4.7 billion shares, while 1.1 billion shares changed hands on the NYSE floor. Declines outpaced advances 3 to 2.
On the housing front, the Wall Street Journal reported that Fannie Mae and Freddie Mac were in discussions with officials over government programs intended to help home owners who owe more than the values of their homes.
And applications for U.S. residential mortgages fell 0.9 percent to 603.5 for the week ended Dec. 3, as refinancings slipped by 1.4 percent, according to the Mortgage Bankers Association. Loan requests for home purchases rose for a third straight week by 1.8 percent to 210.9.
Asian stocks closed mostly in the red with the South Korean Kospi index falling after North Korea fired artillery into its own waters.
On Tap This Week:
THURSDAY: BOE announcement, jobless claims, wholesale inventories, 30-year Treasury bond auction, DuPont investor day; before-the-bell earnings from Lululemon and National Semi
FRIDAY: International trade, import and export prices, consumer sentiment, and Treasury budget
More From CNBC.com: