Stocks remained higher in the final hour of trading Tuesday amid light volume, ahead of Fed chairman Ben Bernanke's speech on the economic outlook.
The Dow Jones Industrial Average was up more than 40 points, led by Alcoa and Intel after finishing lower for the fourth straight session Monday.
Cisco was among the blue-chip laggards.
The S&P 500 and the tech-heavy Nasdaq also climbed. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell below 18.
Among key S&P sectors energy and materials gained, while techs slipped.
“We were oversold for four weeks so we’re seeing a little rebound here—we expect a bounce,” said Alan Valdes, director of floor operations for DME Securities, but added that volume has been quite light and that investors are “still scared” to get in.
Valdes noted that June is historically a down month for stocks and added that trading will likely be volatile throughout the summer with the S&P trading near 1,280 on the downside and 1,350 on the upside.
“This market was really fueled by the Fed,” he said, adding that stocks could tumble as much as 6 percent if there is no QE3.
Fed Chairman Bernanke is scheduled to speak at 3:45 p.m. ETto a bankers conference in Atlanta on the state of the economy. Following last week's weak jobs report and with the QE2 program winding to an end at the end of the month, investors will pore over Bernanke's words for any hints about a possible QE3. (CNBC.com will stream the event live.)
Earlier, Richard Fisher said the Fed is not holding back the economy and that there is no need to continue the easy monetary policy.
"The question is who steps on the pedal to accelerate the car—It’s out of our hands right now," the Dallas Fed President told CNBC.
Meanwhile, Atlanta Fed President Dennis Lockhart said the economic rebound remains disappointingly erraticand hinted that the central bank may be considering further stimulus.
Banks gained after selling off heavily in the recent weeks with JPMorgan and Barclays advancing almost 2 percent each.
Regions Financial said it will repurchase $1 billion in credit card accounts from Bank of America's
Morgan Stanley said it may cut the number of brokers in its wealth management division. The announcement follows a layoff of about 300 brokers in the previous quarter.
Oil gained amid expectations that OPEC will increase its production quota for the first time in 2-1/2 years this week, although the amount is still under discussion. London Brent crude gained $2.30 to settle at $116.78 a barrel, while U.S. light, sweet crude rose 8 sents to settle at $99.09.
Meanwhile, oil drillers including Halliburton and Baker Hughes advanced following a forecast from Dahlman Rose & Co stating that global spending on oil and gas exploration and production may grow 14 percent in 2011.
The dollar declined to a one-month low against a basket of currencies after a Chinese official said the greenback would continue to weakenversus other major currencies. But gold failed to decline on the heels of a weaker dollar, slipping $3.20 to settle at $1,544 an ounce. (Read More: Dollar Rise Will Spell Trouble for Gold—Analysts)
Material stocks showed strength with Freeport McMoran , Rio Tinto and BHP Billiton gaining.
General Motors said May vehicle sales in China slipped for the second consecutive month amid a slowdown in the world's largest market. Meanwhile, Ford CEO Allan Mulally is expected to tell investors the automaker plans to increase sales by 50 percent over the next four years.
General Electric and Capital One have submitted bids for ING's U.S. online banking operations in a deal worth about $9 billion, Bloomberg reported.
NBC Universal and Blackstone Group said they had reached agreement with NBCU, controlled by Comcast owner of CNBC, to buy out the private equity firm’s 50 percent stake in Universal Orlando for around $1 billion.
Meanwhile, Disney announced it will cut around 200 jobs at its movie studio as it reduces its focus on home entertainment distribution of DVDs.
International Paper launched a $3.3 billion unsolicited offer for rival Temple-Inland as it dug in for what could be a prolonged battle to dominate North America's corrugated packaging business. Temple-Inland shares skyrocketed more than 40 percent. The bid helped lift other paper companies, including Weyerhaeuser.
On the tech front, Intel gained after a Citigroup research note speculated that the Dow component may enter into a deal with Apple to produce semiconductors that power devices such as the popular iPhone and iPad.
Research In Motion slipped after Morgan Keegan cut the BlackBerry maker's rating to "market perform" from "outperform." Sprint also declined after Stifel Nicolaus cut the telecom firm's rating to "sell" from "hold."
Sony unveiled its new PlayStation Vitahandheld games device, but critics said the price of the gadget was too expensive.
On the earnings front, PepBoys plunged over 15 percent after the car service chain, reported results that missed estimates, due to bad weather and higher gas prices that constrained consumer spending.
And Talbots tanked almost 40 percent after the women's clothing retailer warned its revenue would fall for a fifth straight quarter.
Treasury prices added to earlier lossesafter the government auctioned $32 billion in 3-year notes, which had a high yield of 0.765 percent and a bid-to-cover of 3.28. Auctions of 10-year notes and 30-year bonds are expected Wednesday and Thursday, respectively.
On the economic front, U.S. consumer credit outstanding jumped by $6.25 billion during April after a downwardly revised $4.82 billion rise in March, reflecting a gain in student and car loans.
European shares finished flatafter a four-session slide, amid growth concerns and as the euro zone peripheral debt crisis continue to weigh on sentiment.
The IMF is open to delaying Greece's repayment of its international loans but believes a major restructuring of its debt would create serious problems in the euro zone, according to an official.
Coming Up This Week:
TUESDAY: Consumer credit
WEDNESDAY: Weekly mortgage applications, McDonald's sales data, quarterly services survey, oil inventories, 10-year Treasury note auction, Fed's Beige Book; Fed's Hoenig speaks; Caterpillar shareholder meeting.
THURSDAY: Bank of England announcement, European Central Bank announcement; international trade, jobless claims, wholesale trade, 30-year Treasury bond auction, money supply; Lubrizol shareholders vote on Berkshire takeover; Fed's Plosser speaks, Fed's Yellen speaks; earnings from National Semiconductor.
FRIDAY: Import & export prices, Treasury budget; earnings from Lululemon Athletica.
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