Stocks ended higher on Tuesday as news that Bank of America would boost its dividend amid a stronger profit forecast than analysts expected lifted financials, and oil prices eased amid news OPEC is considering a boost in output.
TheDow Jones Industrial Average rose about 124 points to close at about 12,214, reversing losses triggered by worries over the situation in the Middle East in the previous session.
Bank of America , led financials higher on the blue-chip index. American Express and JPMorgan were among the top gainers, while McDonald's slumped after reporting U.S. sales below expectations.
The S&P 500 rose nearly 0.9 percent to about 1,321, while the tech-heavy Nasdaq rose nearly 0.75 percent. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell below 20.
Most key S&P 500 sectors rose, led by financials, telecom and industrials.Energy skidded.
Oil prices fellafter OPEC considered boosting production for the first time in more than two years. London Brent crude fell 1.72 percent a barrel to settle just above $113, while U.S. light sweet crude fell 0.4 percent to settle just above $105. Gold declined 0.5 percent to close at $1,426.90 an ounce, falling from the previous day's record high.
In the Middle East, the head of the National Libyan Council, the rebel group, offered not to pursue Muammar Gaddafi if he resigns in the next 72 hours, according to Reuters.
"People are watching oil tick-by-tick," said Joe Saluzzi, co-manager of trading at Themis Trading.
But the equity market is largely driven by the Federal Reserve's $600 billion in bond purchases and high-frequency traders who are responsible for some of the big swings seen over the last few weeks, said Saluzzi. "That’s what keeps the market locked in its range."
Also, Saluzzi said traders who have been burned by betting stocks will fall—or "shorting" the market—are acting more defensively, which is lending support to stocks.
"If they do short, they cover right away," he said.
Bank stocks led the rally, with Bank of America among the leaders as its CEO Brian Moynihan told investors the bank will cut costs to boost profits, as it continues to address mortgage losses. Moynihan also reiterated the bank's plans to increase its dividend in the second half of the year.
The news gave short-term traders as well as long-term investors a reason to buy the bank's stock, which has been trading at depressed levels, said Scott Redler, chief strategic officer at T3Live.com, who believes the stock could reach as high as $17 or $18 a share this year.
"People want to buy Bank of America," Redler said. "They see it as a play for an improving economy."
BofA's rivals Citigroup and Wells Fargo also traded higher.
Redler noted that if the S&P 500 is able to get beyond 1,330 or 1,332 in today's move, it "could take us back to the highs of two-and-a-half weeks ago, or obviously higher," but later in the day Redler noted that there was little upside follow-through in the market and little downside follow-through. "Traders are having a hard time," he said.
Transportation companies led the advance among industrials, including Southwest Airlines , Delta Airlines and Expeditor's International , as an easing in oil prices brought relief to investors. The Dow Jones Transportation Index rose nearly 2 percent.
Boeing rose after news the airline manufacturer signed deals valued at about $10 billion with two Chinese airlines for 2,000 planes over the next 5 years.
Meanwhile, energy shares were mostly lower across the board. Petrobras and Suncor slid more than 2 percent each, while the Oil Service HOLDRS Trust traded flat.
Also, a federal judge extended a temporary order preventing courts in Ecuador from collecting an $18 billion judgment against Chevron .
Pulte Homes soared after the homebuilder pre-released encouraging comments on order trends for January and February. Most homebuilders including KB Home and D.R. Horton also advanced.
In other corporate news, McDonald's fell despite reporting a 3.9 percent gain in global growthin restaurants open at least 13 months on Tuesday.
Among tech stocks, Ciena fell for a second day after a disappointing earnings release, and despite two firms raising their prices targets for the communications equipment company.
Nvidia shares fell slightly even after
Meanwhile, Netflix sank after news Facebook is dabbling in streaming movies and video on its site for a modest fee, beginning with some films from Warner Brothers.
Adobe shares rose after Jefferies raised its price target on the firm to $40 from $35.
And Western Digital climbed after Wedbush raised its price target on the company to $40 from $35.
Shares of Sprint Nextel spiked amid rumors that Deutsche Telekom plans to sell its T-Mobile USA unit in exchange for a major stake in Spring, according to Bloomberg, citing sources. CNBC reported the two sides were far apart in price a few weeks ago and that nothing seems imminent.
A handful of retailers reported mixed earnings results. Urban Outfitters sank after the retailer delivered unexpectedly weak profits. Citigroup cut Urban Outfitters' price target to $34 a share from $38, while Wall Street Strategies cut its rating on the firm to "sell" from "hold."
Bed, Bath & Beyond slumped after Oppenheimer downgraded the home goods retailer to "perform" from "outperform," and cut its price target to $51 a share from $54, citing the effects of rising cotton prices on profits.
Meanwhile, Dick's Sporting Goods soared almost 7 percent after the sporting apparel retailer posted a bigger-than-expected profit and forecast a strong year ahead as it saw margins swell and online sales rise during the holiday quarter.
Johnson & Johnson traded slightly higher despite being issued a warning by the U.S. Food & Drug Administration about problems at its stent-making plant in Puerto Rico.
The dollar rose against a basket of currencies, and the euro fell amid renewed concerns with weaker European economies.
Treasury prices pared some lossesafter the government auctioned $32 billion of three-year bonds, which had a high yield of 1.298 percent and a bid-to-cover of 3.22. The government is expected to auction 10-year notes and 30-year bonds in the next two days. The yield on the 10-year Treasury rose to 3.54 percent on Tuesday.
Highest yield since March 3. In economic news, the monthly "optimism index" from the National Federation of Independent Business reported its fourth monthly gain. The index, at 94.5, remains below 100, which was the average level for 30 years before the recent recession.
European shares ended higher, helped by lower oil prices. The FTSEurofirst 300 index of top European shares closed up 0.3 percent higher.
On the Calendar:
WEDNESDAY: Mortgage applications, wholesale trade, oil inventories, 10-year Treasury note auction, BofA/ML consumer conf., Citi 2011 financial services conference, anniversary of S&P 500 closing low (2009); earnings before-the-bell from American Eagle Outfitters and after-the-bell from H&R Block.
THURSDAY: BoE announcement, international trade, jobless claims, quarterly services survey, 30-year Treasury bond auction, Treasury budget, money supply, Nasdaq peak anniversary; Earnings before-the-bell from Smithfield Foods and after-the-bell from National Semiconductor.
FRIDAY: Retail sales, consumer sentiment, business inventories, S&P index rebalancing info due, Apple's iPad 2 ships; earnings before-the-bell from Ann Taylor.
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