U.S. stocks closed lower after oil prices staged a late rally, while weakness in technology dragged down the Nasdaq.
The Dow Jones Industrials moved briefly above 12,600 but fell back to finish the day slightly lower.
"I would say on balance, when you consider that the market is making new highs every other day, if it sells off a few points, that's no big deal," Ted Weisberg, President of Seaport Securities, told CNBC.com. "The underlying tone remains positive."
Energy was the best performing S&P 500 sector, helped by a boost in oil prices. Technology was the worst performer.
"If you haven't sold energy stocks, I'd be picking them up to get a little bit more exposure to energy," said Michael Driscoll, Bear Stearns Senior Managing Director in Equity Trading, appearing on CNBC's "Street Signs." "I think 2007, while it may not be as good as years past, will be as good as anything out there."
Oil prices have turned higher in a volatile trading day due to options expirations. New York light crude futures traded above $52 per barrel after falling below $51 earlier in the session.
Advancing issues led declining shares on the NYSE. The Nasdaq was lower, weighed down by weakness in technology shares.
The Federal Reserve's "beige book," a survey of economic conditions from its 12 districts, indicated that inflation remains in check and economic growth is moderate to mixed. Fed officials noted that the labor market remains tight, but wage gains were said to be moderate.
"This should really be a great tonic for equity prices and financial assets in general," Joe Lavorgna, Chief U.S. Economist at Deutsche Bank, told CNBC. "This really right now is everything the Fed could possibly want."
Thursday, investors will turn their attention to comments from Federal Reserve Chairman Ben Bernanke who is testifying before the Senate Budget Committee.
Stocks started the day lower after the government reported that wholesale prices rose slightly more than expected in December.
The report, coupled with fresh crop damage in California from a deep freeze and a sharp jump in corn prices in recent sessions shifted traders' focus to the possibility of food inflation.
"The increase in food prices won't go unnoticed by consumers and could supplant energy prices as an influence on inflation expectations," said Tony Crescenzi, Chief Bond Market Strategist at Miller Tabak & Co. "If consumer food prices rise, the rise in inflation expectations could offset any decrease that occurs from the decline in energy prices."
Vornado Realty Trust , joining with Starwood Capital and Walton Street Capital, is expected to make a bid to buy Equity Office Properties today or tomorrow, people familiar with the situation tell CNBC's David Faber. Equity Office Properties agreed in November to be bought by private equity firm Blackstone Group for $20 billion.
Investors are also reacting to a slew of corporate earnings reports.
After a rapid ascent in recent sessions on rising oil prices, shares of airline companies are slightly lower on profit-taking. AMR, the parent of American Airlines, reported its first full-year profit since 2000. AMR reported a surprise fourth-quarter profit of 7 cents a share, while Wall Street had expected a loss.
Dow component JP Morgan Chase said earnings surged 68% in the fourth quarter due to a rise in investment banking and debt financing deals. The third-largest U.S. bank reported net income of $4.5 billion or $1.26 a share, well above the 94 cents a share analysts were looking for.
McDonald's reported an increase in same-store sales in the fourth-quarter in both the U.S. and overseas markets. The fast food giant also forecast a fourth-quarter EPS of $1 a share, compared to the 58 cents Wall Street is forecasting.
Home builders are higher despite a wider than expected quarterly loss from Lennar . However, the company's CEO said 2007 earnings may meet or even exceed earnings in 2006.
Intel said late Tuesday gross margin would be about 49% in the first quarter and 50% for 2007, below analysts' expectations.
In addition, European Union investigators recommended the Competition Commission charge Intel with hampering competition in the chip market, The Wall Street Journal reported. Intel told CNBC Europe it will fully cooperate if there is an investigation.
For the second month, the Merrill Lynch fund manager survey reflected a strong over-weight sentiment for technology. Merrill reiterated its underweight recommendation for the energy sector, citing lower oil, broader commodity weakness and continued slowing global demand.
Europe Closes Lower
London's FTSE-100, the Paris CAC-40 and Frankfurt's DAX all closed lower on concerns about inflation in the United States.
Annual consumer inflation growth in the euro zone remained at 1.9% in November, the European Union statistic office said.