Stocks closed modestly higher, but the Dow lost ground in the final minutes of trading to close below 12,000 after bouncing above and below that level much of the session.
The Dow Jones Industrial Average rose 8.25 points, or 0.07 percent, to close at 11,985.44, ending below the psychologically important 12,000 level after rising as high as 12,020.52 during the session. It was still the highest close for the Dow since June 19, 2008, which was the last day the Dow closed above the benchmark.
DuPont , Alcoa and Verizon led the blue-chip index higher, while Boeing and Disney declined.
The S&P 500 rose 5.45 points, or 0.42 percent, to close at 1,296.63, its highest close since Aug. 28, 2008. The Nasdaq gained 20.25 points, or 0.74 percent, to close at 2,739.50. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell below 17.
Among key S&P sectors, energy, materials and telecom advanced, while utilities and consumer staples fell.
Despite the fanfare around Dow 12,000, some market pros advised cautionin using the threshold as a reason to jump into stocks. And some strategists stressed that the 1,300 level on the S&P is the next important mark that investors should watch. The last time the S&P 500 closed above 1,300 was Aug. 28, 2008.
"Most won't invest just because the Dow is approaching the 12,000 mark," said Beth Larson, principal at Evermay Wealth Management. "I would hope that not too many individual investors are getting in at this level."
Hitting 12,000 would mark a 23.88 percent jump in the Dow from its lows in July. But the S&P and the Nasdaq have already hit that threshold, the S&P on Jan. 3, and the Nasdaq on Dec. 3.
"My concern is that at some point, I don’t think the fundamentals behind our market movement is supporting the market movement that we’ve gotten ," said Jonathan Corpina, managing director at Meridian Equity Partners. "As we move higher, it’s great, but the higher we go, the more fragile the market can become."
The support for stocks on Wednesday reflected largely positive earnings results, which Corpina described as "more doubles and triples," than the "triples and home runs" of the previous earnings season.
"In the past, the bar wasn’t set that high," Corpina said. "Now, analysts are expecting a lot out of these companies."
The market's move higher also reflected the President's comments in his State of the Union address Tuesday, which Corpina said were realistic, in that the President didn't offer a campaign speech, but a focus on areas of strength as well as areas that need improvement.
The Federal Reserve said today that the U.S. economy is improving, but not at a brisk enough rate to require a change to its plan to buy $600 billion in long-term securities to bolster the economy before the middle of the year. The Fed also announced it was leaving short-term rates unchanged.
The news was largely as expected, although the Fed did acknowledge a slight upgrade to household spending and business spending on equipment and software, and also, the central bank acknowledged some inflationary pressures, particularly with commodities.
"It appears the Fed does not feel the inflation threat is a dire risk to force the committee to curb, or even prematurely end, its quantitative easing policy," said Todd Schoenberger, managing director, equity trading, LandColt Trading. "Knowing $7 billion a day in liquidity injections is expected to continue deep into the spring, the bull run in equities may very well continue for months to come."
Stocks largely held their gains after the Fed announcement, but bonds sold off after a short lift immediately after, said Anthony Valeri, investment strategist for fixed income at LPL Financial.
The weakness in the bond market reflects investor concerns with the Fed's decision to continue with its second round of bond buying (a policy known as "quantitative easing 2 - or QE2) at the same time President Obama failed to outline tangible steps to deal with the deficit in his State of the Union address, Valeri said.
"With QE2 in place, capping discretionary spending won’t put any dent in the deficit, and the bond market is seeing right through that," he said.
Also on Wednesday, the U.S. Treasury auctioned $35 billion in five-year notesat a high yield of 2.041 percent, and a strong bid-to-cover of 2.97, the day after a weak two-year note auction. Still, bond prices in the secondary market slipped after the auction. The five-year note fell 7/32 to yield 1.99 percent, while the benchmark 10-year note fell 15/32 to yield 3.39 percent.
Energy stocks were among the best performers for the session after ConocoPhillips and Occidental Petroleum
Meanwhile, oil prices rebounded above $87 a barrel, even after the government reported a big rise in crude inventories on Wednesday.
A handful of other firms reported earnings this morning. Boeing sank more than 4 percent after the Dow component posted a profit that came in line with expectations but revenue missed forecasts and the airliner handed in a full-year outlook that also disappointed.
Meanwhile, United Continental posted a wider quarterly net losson expenses tied to last year's merger of UAL and Continental Airlines, but excluding items the company made a profit. Rival US Airways reported quarterly profit against a year-ago lossas the industry extends a recovery from the most recent economic downturn that drained travel demand.
United Technologies reported a 12 percent rise in profit, boosted by strong emerging-market demand for its products and higher profit margins. And Abbott Labs reported better-than-expected results, fueled by strong demand for its prescription medicines and improving demand for medical devices.
Xerox shares slipped more than 5 percent after the printer and copier company's quarterly profit felldue to restructuring charges. Xerox also announced its CFO plans to retire next month.
And Eastman Kodak plunged more than 15 percent after the photography company reported a far larger-than-expected quarterly loss and a 25 percent drop in revenue.
About 70 percent of S&P companies have beaten estimates so far, but worries that inflation could cut into profits have caused investors to focus on the companies with spectacular results.
Qualcomm , Netflix and Starbucks were expected to report earnings after-the-bell tonight. (Read More: Is Netflix the Most Overvalued Stock on the Street?)
In tech news, trading volume in shares of McAfee skyrocketed to more than 450 percent of its 10-day average after Intel won conditional approval by the European Union to acquire MFE.
Yahoo slid a day after the search-engine firm gave revenue guidance for the current quarter that was short of forecasts. Analysts appeared to be mixed on the stock: Citigroup raised its target price to $19 from $18 while Goldman Sachs cut their target price to $18 from $19.
In the State of the Union address to Congress, Obama asked lawmakers to work with him to cut the corporate tax rate and simplify the tax code, moves that could lead to higher corporate profits.
Economist Nouriel Roubini was skeptical of the plan to partially freeze defense spending. He told CNBC in Davos that it would yield no more than "spare change" compared to a budget deficit of more than $1 trillion.
The government will have to work on reform on entitlement programs like Social Security and "also eventually raise taxes for both the rich and the middle class," said Roubini.
Sara Lee shares skidded after the food manufacturer rejected a buyout offer from a group of private equity firms, saying it was too low, the New York Post reported, citing sources.
Toyota declined after the Japanese automaker said it would recall about 1.2 million unitsof the Noah minivan and other models in Japan as well as about 140,000 Avensis models overseas to fix faulty fuel pipes and high-pressure fuel pumps.
Wells Fargo upgraded the railroad sector to "overweight" from "market weight," and lifted CSX to "outperform" from "market perform."
Nielsen and Demand Media soared in their stock market debuts this morningafter both media companies raised more than expected in their IPOs.
And Ally Financial, the former GMAC, said it is planning to go public in an initial stock offering of between $5 billion and $10 billion, CNBC has learned.
Volume on the consolidated tape of the New York Stock Exchange reached 4.5 billion shares changing hands, while 1.2 billion changed hands on the NYSE floor.
On the economic front, new home sales in December rose faster than expectedto their highest level in eight months and prices were the highest since April 2008, raising cautious optimism for a housing market recovery.
Earlier, the Mortgage Bankers Association reported mortgage applications slumped 12.9 percent last weekas bankers recorded the slowest refinancing activity in more than a year.
The dollar closed at its low for the year against the euro, and fell against a basket of currencies. Gold rose to about $1,333 an ounce, bouncing up from the previous session's three-month low.
On the Calendar This Week:
WEDNESDAY: Earnings after-the-bell from Qualcomm, Netflix and Starbucks.
THURSDAY: Durable goods, jobless claims, pending home sales, natural gas inventories, 7-year Treasury note auction; Before-the-bell earnings from AT&T, Caterpillar, and Colgate-Palmolive; after-the-bell earnings from Microsoft.
FRIDAY: GDP (first reading), consumer sentiment; NBCU/Comcast deal closes; before-the-bell earnings from Chevron and Honeywell.
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