Stocks significantly pared gains amid word out of Israel that Iranian warships would be going through the Suez Canal.
The Dow Jones Industrial Average rose about 30 points—retreating from gains of more than 70 points earlier—after the blue-chip index paused for breath on Tuesday.
Among Dow components, JPMorgan , Hewlett-Packard, and DuPont rose, while Verizon and Microsoft fell.
The S&P 500 gained, but was off from 1,333.58, double its level from its March 6, 2009 intraday low. The Nasdaq also gained. The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose above 16.
Most key S&P sectors gained, led by energy, materials and consumer discretionary, while telecom fell.
Oil, meanwhile, surged after the news from Israel's foreign minister that Iran plans to move two warships through the Suez Canal to Syria. Brent crude rose more than $104 a barrel, while U.S. light sweet crude rose more than $85 a barrel.
The dollar fell against a basket of currencies as the euro rose. "The dollar is being sold off against the Swiss franc and the euro because, should there be a conflict with Israel, this would be bad for the U.S. as well," Brian Dolan, chief currency strategist at Forex.com told CNBC. The price of gold rose above $1,376 an ounce.
Despite the downdraft in the market at mid-day, stocks held their ground and slowly rose, although the major indices remained off their highs. Paul Brigandi, vice president at trading at Direxion Funds, says the market is slowly trending upwards, buoyed by steadily improving economic news and a strong batch of earnings in the fourth quarter.
Even on down days, like Tuesday, there's little follow through, Brigandi said.
"That tells you there’s underlying support in the market, that buyers are coming in at any little signs of weakness," he said.
Nearly 90 percent of all energy stocks rose on Wednesday, led by Denbury Resources , Halliburton and FMC Technologies .
Meanwhile, Air Products & Chemicals led materials stocks higher after news it would no longer pursue Airgas. That's because a judge upheld Airgas's use of a poison pill defense against Air Product's $5.9 billion hostile bid for the company. Also higher were metals and mining companies, including US Steel , AK Steel and Titanium Metals .
In earnings news, Dell soared after reporting quarterly earnings that outpaced Wall Street expectationsafter the closing bell on Tuesday, thanks to business spending on technology hardware. At least seven brokerages raised their price target for the stock.
CNBC.com-parent Comcast's shares rose after the company reported its profits rose to 36 cents a share, and said it would boost its dividend by 19 percent.
Deere'sprofit doubled, sending its share up to a new high.
Abercrombie and Fitch gained after beating earnings expectations with a 95 percent jump in fiscal fourth-quarter profits. The teen retailer benefited from international sales, which rose 61 percent in the quarter compared with a 16 percent gain in the U.S.
Office Max shares fell after the office supplies retailer forecast a weak sales outlook, and fell short of expectations for fourth-quarter sales. Rivals Office Depot and Staples also slumped.
And BHP Billiton fell despite reporting Wednesday that it would hand back $10 billion to shareholders through an expanded share buyback after nearly doubling its first-half profit to a record on booming iron ore and copper prices.
In merger and acquisition news, Family Dollar skyrocketed after news Trian Capital, owned by Nelson Peltz, would take the discount retailer privatein a deal valued at $7.6 billion, according to a regulatory filing, CNBC reported. Rival Dollar Tree jumped on the news.
Sanofi-Aventis and will be in focus Wednesday after the French drugmaker agreed to buy the U.S. company $20.1 billion in cash. Genzyme shares rose in pre-marke trading.
Also, St. Joe gained after news David Berkowitz of Fairholm Capital is seeking to replace the board of directorsof the Florida real estate company. Berkowitz, whose mutual fund owns nearly 30 percent of St. Joe, resigned from the board earlier this week.
In technology news, Research and Motion gained after Citigroup upgraded the maker of the Blackberry to "buy" from "sell," and boosted its price target to $80 a share from $56, saying it would benefit from Nokia's decision to partner with Microsoft to produce smartphones.
But Citigroup cut its price target for Motorola Mobility Holdings to $32 a share from $34.50.
Among retail stocks, Gap rose for a second day after Citigroup raised the the stock to "hold" from "sell."
In economic news, the core producer price index,excluding volatile food and energy prices, rose 0.5 percent in January compared with a 0.2 percent gain in December, the Labor Department reported Tuesday. The overall PPI rose 0.8 percent versus a 0.9 percent gain in December, the government said. Economists surveyed by Reuters had expected the core PPI to rise 0.2 percent.
Also, housing starts rose 14.6 percent to a seasonally adjusted annual rate of 596,000 units, compared with a downwardly revised gain of 520,000 units in December. The January jump was the to the highest level since since September.
Housing permits, however, fell 10.4 percent to a 562,000-unit pace last month, after a 15.3 percent gain in December. January permits were hurt by a 23.8 percent drop in multi-family permits.
Earlier, the Mortgage Bankers Association reported its seasonally adjusted index of mortgage applications, including applications to refinance as well as purchase, dropped 9.5 percentin the week ended Feb.11.
The MBA's seasonally adjusted index of refinancing Also, U.S. industrial output fell 0.1 percent from an upwardly revised 1.2 percent gain in December, according to a Federa Reserve report released Wednesday. The drop was more than expected by economists surveyed by Reuters had expected a 0.5 percent gain.
Meanwhile, capacity utilization fell to 76.1 percent in January from an upwardly revised 76.2 percent, falling short of the 76.3 percent gain expected by economists surveyed by Reuters.
The big event of the day could be minutes from the Federal Reserve last meeting, released at 2 p.m. Traders will be watching that for any change in tone about the Fed's program of buying $600 billion in long-term Treasury securities to boost the economy, known as quantitative easing.
Also, Treasury Secretary Tim Geithner testifies before both the Senate Finance committee at 10 a.m. and the House Budget Committee meets at 2 p.m. on President Obama' s budget.
Societe Generale's profits nearly quadrupledin the final quarter of last year, thanks to a pick-up in its retail banking and core equities derivatives businesses, news that banking shares in Europe.
On the Calendar:
WEDNESDAY: House hearing on FCIC report, oil inventories, FOMC minutes; earnings after-the-bell from CBS, NetApp and Nvidia.
THURSDAY: Weekly jobless claims, CPI, leading indicators, Philadelphia Fed survey, Chicago Fed President speaks, money supply; earnings before-the-bell from Barrick Gold, AngloGold and Nordstrom.
FRIDAY: Earnings before-the-bell from Campbell Soup.
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