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Dow Poised for 7th Straight Gain; Energy Slips

Stocks climbed Tuesday, putting the Dow on track for its seventh-consecutive gain, after investors shrugged off China's interest rate hike for the second time in just over a month and a handful of disappointing earnings reports.

The Dow Jones Industrial Average was up almost 70 points, led by McDonald's and General Electric .

Intel , ExxonMobil and Cisco were among the blue-chip laggards.

The S&P 500 and the Nasdaq rose. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell near 16.

A burst of merger activityand upbeat corporate profit outlooks had boosted investor confidence in the previous session with the Dow and S&P 500 hitting fresh 2-1/2 year highs.

Among the key S&P 500 sectors, consumer discretionary and financials advanced, while energy and utilities slid.

Some market experts warned that a correction is on the horizon.

"We're due for some kind of pause to refresh—it's been that case since December," Paul Schatz of Heritage Capital told CNBC. "At some point this quarter, we'll get a 4 to 8 percent cleanseand that will set the stage for a very powerful rally in the late spring."

Schatz added that investors should look at the laggard stocks to rally in the short-term.

The Federal Reserve should seriously consider pulling back on its $600 billion stimulus program given stronger growth and a brighter jobs picture, said Richmond Fed President Jeffrey Lacker at a business gathering at the University of Delaware.

Despite a report last week showing only 36,000 jobs were created in January, Lacker said other measures were pointing to a firmer economic recovery and better employment prospects.

"An array of forward-looking indicators of employment trends point to continued labor market improvement," said Lacker.

Meanwhile, Dallas Fed President Richard Fisher, last year a vocal critic of the Fed's $600 billion bond-buying program, said on Tuesday he would oppose further Fed easing and would move aggressively to trim the central bank's bond holdings should inflation emerge.

And Atlanta Fed President Dennis Lockhart said inflation is still below the central bank's comfort levels and price rises for individual goods or services does not signal broader price pressures are around the corner. Lockhart said the central bank cannot address rises in the cost of living, but needs to ensure prices overall remain stable.

"For the moment, inflation, properly defined, is tame, in my view. And the rise of individual prices does not signal incipient inflation,'' Lockhart told the Calhoun County Chamber of Commerce.

In the day's earnings news, Toyota reported a 47.6 percent drop in quarterly profit, hit by slumping Japanese car sales and a firm yen that underlied its exposure to loss-making exports, but lifted its forecast as cost cuts kicked in.

Meanwhile, ArcelorMittal rose more than 3 percent even after the world's largest steel maker reported a quarterly loss, but expected 2011 to be better than 2010.

Beazer Homes slid more than 4 percent after the homebuilder reported a wider-than-expected loss amid weak demand for new homes. And Sara Lee posted earnings that missed estimates by a penny, as the weaker euro hurt sales.

Swiss bank UBS said it expects to win back more business from clients in 2011and has laid the foundations for a rebound in its investment bank.

With more than half of the S&P 500 companies' quarterly results in, 72 percent have beat expectations.

Disney , McAfee and Take Two are expected to report earnings after-the-bell tonight. Brokerage Wedbush raised its price target on Disney to $41 from $36.

Meanwhile, McDonald's rose to lead the Dow stocks after the fast-food chain announced global sales at established restaurants climbed 5.3 percent in every region except the U.S., where sales were only up 3.1 percent. Wall Street expected global sales and U.S. sales each to rise 4.4 percent.

AIG said it has opted to delay its "re-IPO" to late April or May, CNBC reported, citing sources. AIG had formerly planned to launch the deal as early as March.

On the tech front, Intel said it will resume shipping known configurations of a flawed chipset that work for use with its new processors. The action was in response to demands from personal computer makers that will use the chips selectively.

Apple shares ticked higher after Canaccord Genuity raised its price target on the iPod maker to $460 from $432. (Read More: Apple Is Most Valuable Company on Earth: Analysts)

Tesla shares spiked more than 8 percent after a Senate proposal for $7,500 electric car tax rebate.

China raised interest rates, its second increase in just over a month, intensifying its campaign against stubbornly high inflation. The move came as a surprise, falling on the final day of the Lunar New Year holiday, but investors have long expected more monetary tightening as Beijing struggles to rein in price pressures and ward off a property bubble.

Oil prices fell back below $87 a barrelin volatile trading after news that Suez Canal operations were unaffected by strikes helped alleviate the latest concerns about Egypt's turmoil and the region's supplies. Oil drillers were lower including Hallburton , Schlumberger and Baker Hughes .

Gold prices jumped 1 percent to a session high of $1,365 an ounceas traders covering short positions in the New York futures market pushed spot prices through key resistance at the metal's 100-day moving average.

Basic materials stocks will continue be in focus as the price of copper hit a record highon concerns about supply and after economic data boosted the outlook for demand.

On the economic front, confidence among small business owners rose to a three year high in January, but concerns about sales saw owners remain cautious about hiring and spending plans, according to a survey from the NFIB. The optimism index rose 1.5 points to 94.1.

Treasury prices slumpedafter the government auctioned $32 billion in 3-year notes which had a high yield of 1.349 percent, and a strong bid-to-cover of 3.01. The Treasury is expected to auction 10-year notes on Wednesday and 30-year bonds on Thursday.

European shares closed lower, slipping back from 29-month highs.

Coming Up This Week:

TUESDAY: Earnings from Disney, McAfee and Take Two.
WEDNESDAY: Weekly mortgage applications, oil inventories, 10-year Treasury note auction, Bernanke testifies before U.S. House, Fannie/Freddie reform hearing, AmEx analyst meeting, HP announces new mobile strategy, Moody’s briefs on sovereign debt ratings; before-the-bell earnings from Coca-Cola, Nissan; after-the-bell earnings from Cisco, Activision Blizzard, MetLife, Prudential and WholeFoods.
THURSDAY: BoE announcement, jobless claims, wholesale trade, Atlanta Fed speaks, 30-year Treasury bond auction, Treasury budget, Ebay investor day, Verizon iPhone goes on sale; before-the-bell earnings from PepsiCo, Philip Morris and Sprint; after-the-bell earnings from Kraft and Expedia.
FRIDAY: International trade, consumer sentiment, Nokia analyst day; earnings from Discovery Communications.

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