Stocks eased losses ahead of the close Thursday as Treasury prices firmed, but gains were limited by a stronger U.S. dollar.
The Dow Jones Industrial Average fell less than 10 points a day after ending slightly higherin a session dominated by moves in Treasurys and metals.
DuPont , McDonald's and Boeing declined, while Bank of America and Cisco rose.
The S&P 500 and Nasdaq rose slightly, but were still set to close at two-year-highs. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell below 18.
Among key S&P 500 sectors, financials, telecom and consumer staples rose, while consumer discretionary and technology fell.
The dollar weakened versus the euroas Fitch cut ratings for Ireland's sovereign debt, and a political party in Ireland said it would vote against a European Union bailout for the country. Gold and silverpricesrecovered some of their gains.
Investors flocked to an auction of $13 billion in 30-year bonds that had a yield of 4.410 percent and a bid-to-cover ratio, a measure of how much is bid for each dollar auctioned, of 2.74. The result surprised as it was on the heels of the worst two-day selloff in Treasurys in two years. After the auction, the 10-year Treasury note rose 20/32 higher to yield 3.19 percent, down from 3.27 percent late Wednesday.
Bond investors have been concerned that an agreement between President Obama and Republicans to extend the Bush-era tax cuts for a further two years would threaten financial stability and spark inflation.
On Thursday, the markets were awaiting direction from Washington about the tax cut plan as Congress continued to wrestle over the details. Aversion of the compromiseis expected to be put before the Senate later today, according to Senate Majority Leader Harry Reid.
Most investors seem to expect a compromise will be reached, and if it's not, "it could be a market moving event," said Kevin Kruszenski, head of listed trading at KeyBanc Capital Markets in Cleveland.
Despite a drift downward in the Dow, largely due to a handful of big stocks, the equity markets remain fairly solid even amid concerns higher bond yields will attract investors, said Art Hogan, chief market analyst at Jefferies. Moreover, volume was up 7 percent on Thursday, a positive sign, he said.
"The equity markets are hanging in there pretty nicely," Hogan said.
As year-end approaches, more individual investors are likely to be assessing the asset allocation of their portfolios. Relative to cash and bonds, and even commodities, which have had a good run, "equities still look like an attractive asset class," Hogan said.
AIG was the top gainer in the financial sector, jumping more than 10 percent, after the insurance giant detailed a plan to repay the Treasury Department.
Citigroup rose after the bank said it hired former White House Budget Director Peter Orzagas vice chairman of global banking. Orzag left the Office of Management and Budget in July.
Morgan Stanley advanced after the bank said it is planning to cut its bonus payments by up to 15 percent this year due to volatile market conditions, the Wall Street Journal reported, citing a person familiar with the situation.
Other financials got a boost from Barclay's, which upgraded three asset managers: Janus Capital , Waddell & Reed and Legg Mason to "overweight." The brokerage firm said the firms will be supported by an improving economy, and noted they were attractively valued.
On the tech front, Dell rose slightly after news the tech giant was in "advanced discussions" to buy data storage solutions company Compellent Technologies . Compellent's shares fell.
Akamai sank after the Internet content delivery firm said pricing in its media business is falling. The firm also said it would not update its outlook for the current quarter.
Ciena advanced after delivering a positive sales outlook for the first quarter, and despite a disappointing fourth-quarter loss.
Ford shares climbed after the automaker announced it plans to add 1,800 new jobsand invest $600 million to revamp its assembly plant in Louisville, Ky. In addition, Bank of America raised its earnings-per-share estimates and increasing its price target for the automaker to $24 a share from $20, based on a price-to-earnings ratio of 10 times estimated 2011 earnings.
BofA also upgraded Goodyear Tire & Rubber and Cooper Tire & Rubber to "buy" from "underperform," and "buy" from "neutral," respectively, citing attractive stock valuations.
Air Products is planning on raising its offer for Airgas to $70 from $65.60. This is a takeover battle that has been going on for almost 14 months. Shares of Air Products and Airgas shares were halted.
Shares of Eastman Kodak soared more than 10 percent to the top of the S&P 500 on 300 times its normal volume, following rumors the firm could be a takeover target.
Dean Foods jumped after news it plans to offer up to $400 million in notes to repay a portion of its debt, a move that will ease pressure on the owner of Fresh Dairy Direct's balance sheet.
And Smithfield Foods also soared after reporting better-than-expected profits in its fiscal second quarter from a year ago the pork processor chalked up losses at its hog production unit.
Shares of Conagra fell after the maker of Chef Boyardee pastas and Healthy Choice meals cut its 2011 outlook after disappointing earnings results.
FBR Capital Markets gave mixed reviews of home improvement retailers Home Depot and Lowe's , raising Home Depot to "outperform" from "market perform," and lowering Lowe's to "market perform" from "outperform." FBR said Home Depot was more focused on "traffic and value" than its rival. (Read More: Home Depot Finally Better Than Lowe's?)
Energy shares were mostly lower including ExxonMobil and ConocoPhillips . Oil prices closed just above $88 a barrel.
Traders cited profit taking ahead of New Year and concerns about China raising interest rates to cool growth as the reason for oil's fall for a third consecutive session after reaching a 26-month high earlier this week.
Sirius XM Radio gained after radio host Howard Stern said he was staying with the satellite radio station, although the terms of the agreement were not disclosed.
Lululemon Athletica soared after the athletic apparel company reported that its profit nearly doubledas strong sales continued for its yoga clothes.
Shares of Freeport-McMoran Copper & Gold rose after its board announced a 2-for-1 stock split and payment of a $1 a share dividend.
And the philanthropic campaign led by Warren Buffett and Bill Gates is set to get a cash injection after another seventeen U.S. billionaires pledged at least half their fortunes to the cause. Facebook co-founders Mark Zuckerberg and Dustin Moskovitz are among the donors.
Meanwhile, a watered-down spending bill has been approved by the House as the Democrats seek to lock in current spending levels before Republicans take control of the House in January.
In economic news, initial claims for unemployment benefits fell by 17,000 to 421,000, according to the U.S. Labor Department. That's less than the 425,00 forecasted by economists surveyed by Reuters. The four-week moving average fell by 4,000 to 427,500, near a two-year low, the Labor Department said.
In a optimistic sign about holiday shopping, U.S. wholesale sales in October climbed more than they had in seven months as inventories continued to rise, the Commerce Department said Thursday. Wholesale sales rose 2.2 percent to a seasonally adjusted $362.1 billion, much more than expected, and compared with a 0.5 percent gain in September. Inventories rose 1.9 percent in October to $427.1 billion after a 2.1 percent rise.
Bullish sentiment among individual investors surveyed by the American Association of Individual Investors reached a four-week high, the group reported Thursday.
Expectations that stock prices will rise over the next six months rose 3.4 percentage points to 53 percent, a four-week high, according to the AAII's weekly survey. Bullish sentiment has been above its 39 percent historical average for 14 consecutive weeks, the group said.
European shares rose for a fourth consecutive day on and hit a new 26-month closing highwithtechs showing the strongest rise. The Bank of England kept its monetary policy on hold, as widely expected.
On Tap This Week:
FRIDAY: International trade, import and export prices, consumer sentiment, and Treasury budget
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