Stocks Recover, Led by Battered Financials

Stocks recovered from an early dip as investors scooped up beaten-down financials amid hopes that there isn't much further for the sector to fall in the near term.

A drop in oil prices also helped. Light, sweet crude was trading below $137 a barrelas Iran denied rumors that there had been an attack on its nuclear facilities.

Traders were a little edgy as the Federal Reserve kicked off a two-day meeting on interest rates.

One drag on the market was a profit warning from UPS, which sent UPS shares tumbling to a five-year low. The package-delivery service said late Monday that it now expects earnings between 83 cents and 88 cents a share for the second quarter, down from its prior range of 97 cents to $1.04 a share, due to the crunch of high fuel prices.

The UPS warning comes a week after rival FedEx reported it swung to a loss in its fiscal fourth quarter and issued a weak outlook for fiscal 2009.

FedEx and UPS earnings are closely watched as a gauge of the economy as the packages they deliver represent sales from a wide variety of sectors.

Not surprisingly, the Case-Shiller home-price index showed that US home prices extended their record slide in April. In other economic news, the Conference Board said consumer confidence fell to a 16-year low in June.

Dow Chemical announced its second price increase within a month that it said was caused by surging energy prices. The price increase amounts to as much as 25 percent in certain areas and includes transportation surcharges. Company shares gained 1.5 percent in premarket trading.

Shares of financials recovered after Monday's drubbing and, in fact, led todya's rebound.

Lehman Brothers, which fell 5.8 percent Monday, soared.

Citigroup, which announced it was cutting 10 percent of the workforce in its investment bank division, also rose sharply. And Washington Mutual was down 2.5 percent after Lehman slashed its price target for the savings and loan from $27.25 to $10, recovered as well.

Most economists expect the Fed to talk tough on inflation but keep the rates on hold due to the weakened economy when the announcement arrives Wednesday.

The Fed's job to fight higher prices will be made more difficult by evidence that job losses, so far largely contained in the financial and housing sectors, are likely to spread to other areas of the economy, depressing consumption even further.

"I think we have to see the Fed just stay on hold, even though a rate increase has been priced in by the end of the year," Kevin Sullivan, portfolio manager at Clariden Leu, told "Worldwide Exchange."

Meanwhile, supermarket chain Kroger reported a profit that beat expectations as the company used lower prices and gasoline discounts to help lure customers.

And stock-exchange consolidation continued, with NYSE-Euronext buying 25 percent in Qatar's Doha Securities Market to get access to the fast-growing Middle East. The Qatari state will keep the remaining 75 percent stake of the exchange.