Stocks remained weak throughout morning trading as investors focused on clashes between government supporters and protesters in Egypt, and regrouped after the market posted new multi-year highs on Tuesday.
The Dow Jones Industrial Average bounced between positive and negative territory after surging Tuesday to close above 12,000 for the first time since June 19, 2008.
Home Depot and Merck led blue-chips lower, while Disney and Boeing rose.
The S&P 500 also fluctuated, a day after crossing the 1,300 threshold for the first time since August 2008, while the Nasdaq traded flat. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell below 18.
Among key S&P sectors, financials, telecom and health care fell, while energy and technology rose.
The dollar fell modestly against a basket of currencies, while the euro also weakened. The price of gold fell slightly to about $1,337 an ounce.
The weakness in the markets today reflects caution over how events are unfolding in Egypt, more than the fact the major indices hit multi-year highs on Tuesday, said J.J. Kinahan, chief derivatives strategist at T.D. Ameritrade.
"I don’t think people are in a panic mode yet," Kinahan said. But, he added, "The market could drop quickly and volatility could escalate quickly." That's if there are further signs of unrest, and if it appears power in Egypt is shifting to forces who don't support the U.S, Kinahan said.
Otherwise, traders who follow the S&P 500 view 1,350 as the next technical high for the broad market index, with 1,250 serving as the bottom support level, he said, noting the 1,300 level was more of a psychological barrier than a technical market for traders.
"The true believers (in a bull market) won’t come out until we get to 1,350," Kinahan said.
Strong gains, too, have not unusual on the first trading day of a month. Since the beginning of 2010, the S&P rose 12 out of 14 first days of the month, and nine of those times the gain was more than 1 percent.
On the earnings front, shares of Mattel gained after the toy maker beat analyst expectations on strong sales of core brands Barbie and American Girl. Mattel earned 89 cents a share on sales of $2.12 billion. Analysts had expected the company to earn 86 cents a share on sales of $2.09 billion, according to Thomson Reuters I/B/E/S.
A 21 percent boost in advertising sales for its cable division boosted Time Warner's fourth quarter sales and profits, sending the entertainment company's shares higher.
Electronic Arts soared to the top of the S&P 500 after raising its fourth-quarter and full-year adjusted earnings targets and announcing a stock-buyback plan, although the video-game maker reported a bigger loss for the fiscal third quarter.
But Genworth surprised analysts by posting a loss on Wednesday as the recovery in its mortgage insurance business continued to weigh on the insurer's earnings. Genworth was among the worst performers on the S&P 500 as its shares sank.
In other company news, shares of Wal-Mart Stores slumped after Deutsche Bank downgraded the stock to "hold" from "buy," and lowered its price target to $60 a share from $66.
Deutsche moved to "equal weight" on retail stocks, saying that the recovery scenario is now baked into valuations.
Meanwhile, the political unrest in Egypt remained in focus as supporters of President Hosni Mubarak clashed with protesters. Mubarak pledged Tuesday evening not to stand for re-election in September, a move greeted with a lack of enthusiasm by protesters who have been callling for him to step down immediately.
Internet service has resumedin Cairo and Alexandria after it was cut off in the wake of the protests last week.
Concerns that the turmoil will spread across the Middle East persisted after Jordan’s King Abdullah II fired his governmenton Tuesday following protests and asked a former prime minister to form a new cabinet.
Oil rose Wednesdayon concerns that unrest in Egypt would trigger turmoil across the Middle East and North Africa, the source of more than a third of the world's oil. ICE Biirent crude rose above $101 a barrel, sliding back a bit after hitting $102.18, the highest level since September 2008. U.S. light crude rose above $91 a barrel. Meanwhile, stockspiles of U.S. crude hit a record 38.33 million barrels, according to the U.S. Department of Energy.
Yum Brands , Visa and News Corp are among companies reporting quarterly earnings after the bell.
Online retailer Amazon.com will also be in focus after the Financial Times reported the company is developing a film streaming service which would compete directly with Netflix .
Private employers added 187,000 jobs in January, slipping from a downwardly revised gain of 247,000 jobs in December, according to ADP Employer Services. Originally, ADP reported 297,000 jobs were added in December. Economists surveyed by Reuters had expected employers to add 145,000 jobs last month.
In other jobs news, planned layoffs rose to 38,519 in January, up 20 percent from December, but employers still planned the fewest number of cuts for January since outplacement firm Challenger, Gray & Christmas began the survey in 1993, the firm said Wednesday.
Also in economic news, the Mortgage Bankers Association'sseasonally adjusted index of mortgage application activity rose 11.3 percent in the week ended Jan. 28. Refinancings rose 11.7 percent, while requests for loans for home purchases gained 9.5 percent.
European markets closed slighlty higher on Wednesday, let by mining stocks. The FTSEurofirst300 Index rose 0.2 ercent
On Tap This Week:
WEDNESDAY: After-the-bell earnings from Visa and Yum Brands.
THURSDAY: Chain store sales, ECB announcement, jobless claims, productivity and costs, factory orders, ISM non-manufacturing index, Bernanke at National Press Club, Minneapolis Fed President speaks, Verizon begins iPhone pre-orders; earnings from GlaxoSmithKline, Merck, Royal Dutch Shell, Sony, Unilever, MasterCard and Sunoco.
FRIDAY: Nonfarm payrolls; earnings from Aetna.
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