Stocks struggled for direction despite upbeat economic news from the auto sector, as General Motors reported a surge in sales, and better-than-expected factory orders.
The Dow Jones Industrial Average bounced between positive and negative territory after upbeat news on manufacturing across the world encouraged investors to get the new year off to a strong start. All the major indexes closed at multi-year highs.
Alcoa, Disney and American Express led blue chips higher, while McDonald's and Coca Cola fell.
The S&P 500 and the Nasdaq fell. The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose to nearly 18.
Among key S&P sectors, materials, technology and energy gained, while utilities and consumer staples fell.
General Motors shares gained after the automaker reported December retail sales rose 27 percent, its best month last year. GM began trading on the New York Stock Exchange in mid-Novembe.r
Overall, December auto sales were expected to reach 12.3 million, according to economists surveyed by Reuters.
Motorola split into two companies and began trading today. Motorola Mobility, which makes cell phone and cable set-top boxes, rose more than 6 percent at the outset, while Motorola Solutions, which sells police police radios and barcode scanners to government agencies and large companies, rose slightly.
Investors who have been holding long positions over the holiday period will have seen the strong gains on Monday as a Christmas bonus and taken profits, Chris Lodge, senior trader at City Index, told CNBC.com.
Shares of BP jumped in UK trading on newspaper reports that rival oil major Royal Dutch Shell was considering buying the troubled firm.
Oil prices sank$2 to below $90 a barrel, after trading near 27-month highs Tuesday in a volatile session as investors took profits.
Energy stocks followed oil lower, led by Anadarko Petroleum , Peabody Energy , and Nabors Industries .Conoco Philips and Chevron also fell.
Gold, too, fell sharply on profit taking, and as investors moved into riskier assets like stocks. Freeport-McMoran Copper & Gold fell more than 2 percent, and Fronteer Gold fell more than 5 percent, despite being added to RBC's best ideas portfolio.
The dollar, meanwhile, rose slightly against a basket of currencies, while the euro reached a three-month peak against the dollar.
The Federal Open Market Committee's meeting minutes will be out at 2 p.m.
In other news, the Pentagon faces cuts and savings of $100 billion, sources told Reuters. The U.S. Defense Secretary Robert Gates is expected to announce the cost-cutting measures this week.
Borders sank further after news the bookstore chain's general counsel and chief information officer resigned. The departures came in the wake of Borders' disclosure it would delay payment to vendors.
Chain store sales will be reported Wednesday and Thursday this week, and were expected to show a 3.3 percent gainin December sales, marking a strong end to the holiday shopping season. But analysts were divided as to whether consumers will continue to shop now that the holidays are over.
Overall, retailers were largely lower on Tuesday. Polo Ralph Lauren's shares, however, gained after the luxury apparel maker was raised to "buy" from "hold" by Citigroup.
Shares of J.M. Smucker fell sharply after Sanford Bernstein cut the maker of jams and ice-cream toppings to "underperform" from "market perform."
Alcoa continued to surge a week ahead of its earnings release, and a day after Deutsche Bank raised the aluminum producer to "buy" from "hold."
In economic news, November factory orders jumped 0.7 percent, more than expected, and up from a 0.9 percent decline in October, according to the Commerce Department. Economists surveyed by Reuters had expected factory orders to fall 0.1 percent.
Asian indexes ended mostly higher with Japanese and Chinese stocks seeing the best of the day's gains. European stocks were higher with the FTSE-100 surging ahead of the other major indexes.
On the Calendar Next Week:
TUESDAY: Auto sales, factory orders, FOMC minutes, API weekly report; earnings from Mosaic.
WEDNESDAY: MBA mortgage applications, Challenger job-cut report, ADP employment report, ISM non-manufacturing index, oil inventories; earnings from Family Dollar. Kansas City Federal Reserve President Hoenig speaks.
THURSDAY: Chain store sales, Monster employment index, ECB announcement, jobless claims, natural gas inventories, Treasury STRIPS, money supply; earnings from Monsanto.
FRIDAY: Nonfarm payrolls report, consumer credit; Federal Reserve Chairman Bernanke speaks, Federal Reserve Vice Chairman Janet Yellen speaks.
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