Stocks closed higher in volatile trading as better-than-expected earnings offset worries about the credit markets.
"We do see volatility pick up in earnings season, but other reasons why we're seeing a spike in volatility are the subprime concerns, the housing market concerns, as well as the corporate debt concerns," said Sean Clark, chief investment officer at Clark Capital Management.
After a strong start, stocks struggled for most of the session in the wake of news that bankers were having problems raising money to finance the leveraged buyout of Chrysler.
Materials was the worst performing S&P 500 sector throughout the session. After seesawing back and forth, most of the sectors traded higher. Energy was the biggest gainer after oil prices rose more than $2 a barrel. Boeing was the biggest percentage gainer on the Dow, rising more than 3% and hitting an all-time high.
Bankers raising funds to finance DaimlerChrysler's deal to sell Chrysler Group to private equity firm Cerberus have postponed a sale of $12 billion in debt. The bankers plan to fund most of that debt now from their own pockets. The move is not expected to affect the closing of the deal.
More fuel was added to worries about deal-financing after Alliance Boots postponed the syndication of $10.4 billion of senior debt backing its leveraged buyout. The company is being bought by Kohlberg Kravis Roberts in Europe's largest LBO ever. The UK health and beauty retailer is proceeding with the syndication of second-lien and mezzanine debt, however.
Worries about the credit market weighed on stocks after a strong start due to good corporate earnings.
Dow component Boeing reported quarterly profit of $1.1 billion, or $1.35 a share, handily beating estimates. Analysts polled by Thomson Financial forecast earnings of $1.16 a share. The aerospace giant also lifted its 2007 outlook. Boeing ramped up delivery of its commercial planes and said defense sales remained strong.
Also on the earnings front, shares of Amazon.com soaredafter the online retailer said sales for the second quarter climbed250% and it raised its full-year sales forecast.
Shares of General Dynamics hit a new high in afternoon trading after the defense contractor's second-quarter earnings fell 19%, but the company still beat Wall Street expectations.
Shares of GlaxoSmithKline also rose after the drug manufacturer said net profit rose 1.4% in the second quarter, even as revenue fell. The world's second-largest pharmaceutical company reported net profit of $2.75 billion. GlaxoSmithKline shares have been weighed down recently following a negative report on its blockbuster diabetes drug Avandia. The company also announced it would lift its stock buyback plan to about $25 billion.
Norfolk Southern said its second-quarter earnings rose 5% as higher segment revenue offset an overall volume loss for the railroad operator. Quarterly earnings were 98 cents a share, higher than the 94 cents forecast by analysts, according to Thomson Financial.
New York light crude futures rose sharply to trade well above $75 a barrel. The latest weekly inventory data showed a drop in crude oil supplies of 1.1 million barrels. There was a build in gasoline supplies of 800,000 barrels and a build in distillates of 1.5 million barrels, both higher than expected.
The National Association of Realtors said existing home sales fell by 3.8% in June to 5.75 million units. Economists were expecting sales of homes already built to fall to 5.85 million in June, down from 5.99 million in May, according to Thomson Financial. The latest data was the lowest pace since November 2002. There was some positive news in the data. Inventories fell and existing home prices rose for the first time in 11 months.
The Federal Reserve's Beige Book report indicated the economy continued to grow at a moderate pace in June and early July despite the ongoing housing slump and reports from several banks that consumer spending was mixed or below expectations.
"The market needs to see a catalyst here in order to figure out why we should go higher," said Eric Thorne, portfolio manager with Bryn Mawr Trust Wealth Management. "I think that catalyst will be the economy strengthening as the year goes on and earnings continuing to do very well."
European Stocks Finish Lower
European stocks closed lower Wednesday following an earnings disappointment from industrial conglomerate Siemens and concerns about financing for takeovers.
The London FTSE-100, the Paris CAC-40 and the Frankfurt DAX all closed lower..
Among the companies reporting earnings, car maker Peugeot Citroen beat analysts' expectations with a 0.3% increase in its operating profit margin for the first halfof the year.
U.K. mortgage lender Northern Rock warned investors its full-year outlook for net interest income will be affected by higher borrowing costs and swap rates during the first half. But Northern Rock CEO Adam J. Applegarth told CNBC Europe that the U.K. is not at risk from a subprime mortgage crisis.
"I think there's a huge difference between subprime in America and subprime in the U.K.," Applegarth told "Squawk Box Europe." Shares of Northern Rock remained flat.
Meanwhile, British household product maker Reckitt Benckiser beat expectations with a 33% rise in second-quarter net profit and said it is likely to beat its 2007 profit and sales growth targets.
In merger and acquisition news, British insurer Resolution agreed to buy rival Friends Provident in an all-stock deal, creating a company worth about $17.7 billion.
Asian Markets Lower
Asian markets were lower in the afternoon session Wednesday with exporters dragging Japan down to a weaker close, but South Korea swinging back into positive territory to end stronger.
The yen hit a 2-½ month high against the dollar as investors bailed out of stocks and risky trades financed by borrowing in the Japanese currency. The rush to safety bolstered government bonds and kept gold near 11-week highs. Disappointing results from Countrywide Financial Corp., the largest U.S. mortgage lender, had fuelled fears about the housing slump, knocking Wall Street sharply lower on Tuesday.
Tokyo's Nikkei 225 Average finished lower as exporters such as Toyota Motor lost ground and lower oil prices hit energy stocks. But Kao Corp. rose on better-than-expected earnings and Kawasaki Kisen Kaisha rose on a news report of robust quarterly earnings, helping the Nikkei trim some of its losses. Shares of department store Mitsukoshi surged on news of a tie-up with Isetan, but Victor Co. of Japan (JVC) tumbled on its lower earnings outlook and uncertainty about its alliance plan with Kenwood.
South Korea's KOSPI swung back into positive territory to a record close above the 2,000 level after Moody's raised its ratings for South Korea by one notch, raising hopes for a long-awaited return by foreign investors. SK Energy surged 45.5% in its market debut due to expectations for stronger earnings. The energy firm was part of the former SK Corp. before the oil refiner split into two and relisted the new firms on Wednesday.
Australia's S&P/ASX 200 Index dropped 1.2%, led by losses in rate-sensitive banks, after surprisingly strong domestic inflation data greatly raised the chance of an interest rate hike next month. The second-quarter consumer price index data came after sentiment had already been dented by fresh worries about the U.S. housing market which pressured U.S.-exposed firms such as Macquarie Bank.
China's Shanghai Composite Index bucked the regional trend, gaining over 2.7%, led by financial and energy shares, as some traders speculated the market could set a fresh record high in the next few weeks on the back of strong corporate earnings.
Hong Kong stocks edged lower, as tumbling U.S. equities prompted profit-taking after the market's record run, but losses were trimmed as investors viewed the weakness as a buying opportunity. Global bank HSBC Holdings slid amid mounting worries over the fallout of the U.S. subprime mortgage lending crisis.