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Stocks Advance on News of Fed Plan

Stocks rose for a third straight day, fueled by news that the Federal Reserve will create a facility to support consumer lending.

The Fed announced another major effort to triage the U.S. financial system: a $600 billion program to buy mortgage-related debt and securities and a $200 billion facility to buy consumer debt securities.

The U.S. central bank said it would buy up to $100 billion in debt issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, the government-sponsored mortgage finance enterprises. The Fed also said it would buy up to $500 billion in mortgage-backed securities backed by Fannie Mae, Freddie Mac, and Ginnie Mae.

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Meanwhile, GDP was revised to show the economy shrunk 0.5 percentin the third quarter from the prior estimate of a 0.3-percent contraction, in-line with economists' expectations.

And a gauge of consumer confidence improved to 44.9 in November from an upward revised 38.8 in October, according to a report from the Conference Board.

Traders were taking a cautious approach a day after the stock market's biggest two-day rally in more than 20 years.

A government bailout for Citigroup and clarity on the incoming government's economic team helped the Dow Jones Industrial Average secure a 4.9 percent gain Monday, adding to Friday's near 500-point leap.

The two trading days mark the best performance for US stocks since the rebound after the 1987 crash. Despite the rally, many investors remained wary of further weakness to come.

"We've been testing these so-called lows the last three weeks and we've broken through them," Rob Morgan, market strategist from Clermont Wealth Strategies, told "Worldwide Exchange." Morgan expects recent lows to be retested, but that could point to further strength if they hold, he said.

Futures were indicating tepid gains for the Tuesday opening, with Dow trading actually below fair-value levels.

Citigroup shares rose again, trading around $6.50 a share, after clawing back most of its losses on Monday following news that the government plans to guarantee over $300 billion of the bank's troubled assets and inject $20 billion from the TARP.

One investor welcoming the government intervention and stock turnaround was Saudi Prince Alwaleed bin Talal, who is building a 5 percent stake in Citi and told CNBC he has "full confidence" in the group's CEO Vikram Pandit.

Fears of rising unemployment couldn't be forgotten as reports of more layoff kept coming.

Internet search giant Google is expected to slash the number of contract workers it uses, according to a report from the Wall Street Journal, while ArcelorMittal warned of layoffs. Google shares bounced.

On the earnings front, DR Horton posted earnings before the bell that reflected a wider quarterly loss of $2.53 per share, or $799.9 million, compared with 16 cents per share, or $50.1 million, a year ago.

Dollar Tree reported its profit jumped 20 percent, topping forecasts, as consumers flocked to staples like food and cleaning supplies.