Stocks were mixed, helped by a smaller-than-expected decline in October pending-homes sales and a rally in big-cap tech shares.
The Nasdaq pushed into positive territory, while the Dow and S&P 500 wobbled amid disappointing corporate outlooks.
Pending U.S. home sales, which reflect contracts signed, slipped by a smaller-than-expected 0.7% in October, the National Association of Realtors said.
"This is modestly encouraging," Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a note to clients. "The bottom line seems to be that the vulture investors who have supported the market in recent months are still active; the plunge in mortgage rates should bring in more buyers over the next few months," he said.
Many investors hoped the rally of the past two sessions, which saw the Dow gain more than 500 points,would be the start of a sharp Santa rally, but high levels of volatility kept market participants fearful of further declines.
"If we just get some sideways action for a little bit of time here then as we go into 2009 that will be a good time to jump back into stocks," Rob Morgan, president of Dearden, Maguire, Weaver, and Barrett, told "Worldwide Exchange."
Infrastructure stocks were mostly higher, getting a boost from President-elect Obama's plan to stimulate the economy with infrastructure spending.
Jacobs Engineering Group , US Steel and Alcoa all rose more than 6 percent.
But there were more profit warnings from corporate America.
FedEx shares tumbled more than 10 percent, making it the biggest decliner on the S&P 500, after the package-delivery service slashed its fiscal 2009 outlook, saying, "significantly weaker macroeconomic conditions are expected to offset the benefits from lower fuel prices and the announced departure of DHL from the U.S. domestic package market."
Shares of rival package-delivery service UPS also fell sharply.
Texas Instruments clipped its earnings and revenue forecast amid a dropoff in demand for chips, used in everything from cellphones to industrial equipment.
This came after its biggest customer, handset maker Nokia , issued two warnings about cellphone demand in the past three weeks.
Smaller chip makers Broadcom and Altera also issued warnings of weak demand this week.
"Conditions (are) likely to get worse before they get better," TI's head of investor relations Ron Slaymaker told analysts on a conference call.
But technology stocks rallied, with strong gains in chips: Texas Instruments up more than 7 percent and Dow component Intel up more than 4 percent.
Among other tech gainers were Google , Amazon and Garmin .
Negotiators tried to finalize short-term loans for auto makers, to stave off liquidity issues and avert bankruptcy. The loans, which could run to $15 billion of government money, would be given on the guarantee of an industry overhaul.
But shares of General Motors and Ford declined — with GM being one of the biggest drags on the Dow — after both stocks rallied more than 20 percent on Monday.
American depositary shares of Sony rose after the Japanese television and gadget maker reported plans to slash 16,000 jobsfrom its payrolls and cut costs by $1.1 billion a year.
Analysts said more cuts may be needed to save Sony's sprawling empire, which has fallen behind Apple with music players and seen flat-panel TV sales slide.
Feeling the pinch of flat TV sales, Corning , the largest maker of glass for those flat-panel screens, said it was considering permanent plant closings and more job cuts. The company said it expects to cut glass prices at a higher rate than usual during the first quarter but wasn't specific.
The news from Sony and Corning comes a day after Korean electronics giant Samsungslashed its sales and earnings targetas well as capital expenditures. The company, which is the world's largest maker of memory chips and LCD screens, said profit markets have also "vaporized" for its LCD business and weren't sure how long the downturn would last.
Forrester slashed its outlook for 2009 technology spending to 1.6 percent from 6.1 percent, saying the recession will likely last longer than previously expected.
"The question for the U.S. tech market is no longer whether the U.S. economy is in recession. Instead, it is how long and deep the recession will be and how much damage will it do to the tech sector," Forrester analyst Andrew Bartels said in a research note.
In other predictions, the Institute for Supply Management said it expects U.S. manufacturing will contract again next year but that the service sector will grow slightly.
WEDNESDAY: Weekly mortgage applications; wholesale trade; weekly crude inventories; House hearing on TARP; Treasury budget
THURSDAY: Two-day European economic summit begins; Import/export prices; trade deficit; weekly jobless claims; weekly natural gas inventories; Fed's Stern speaks; Earnings from Ciena, Costco
FRIDAY: PPI; retail sales; consumer sentiment; business inventories
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