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Dow Ekes Out Gain After Chicago PMI

Stocks erased their losses Wednesday — and the Dow and Nasdaq pulled off a gain — after a better-than-expected report on Midwest manufacturing.

The Dow Jones Industrial Average gained about 3 points, while the Nasdaq rose 0.1 percent. The S&P 500 finished flat.

A little bit of excitement at the Nasdaq today: The exchange and other buildings in New York's Times Square were briefly evacuatedas police evacuated a suspicious van with no license plates that had been parked on Broadway for two days. It turned out not to be a threat. Security concerns have been heightened after a botched bombing attempt on a Northwest Airlines plane headed to Detroit on Christmas Eve.

Stocks started the day lower as a six-day rally lost steam on Tuesday, which carried into Wednesday's session. Adding to the pressure, the dollar gained, even hitting a 3 1/2-month high against the yen. Some investors have started buying the dollar recently, betting that the economy is recovering and the Fed will raise rates sometime next year. Oil rose slightly, settling at $79.28 a barrel. Gold shed more than $5, settling at $1,091.50 a troy ounce.

But a Midwest manufacturing report helped curb losses: The Chicago purchasing-manager's index jumped to 60 in December from 56.1 in November — the highest since January 2006 and well above expectations. The employment gauge also rose, hitting its highest since November 2007.

The report is "an unambiguously robust reading on Midwest manufacturing conditions" and "hints at the possibility of a positive reading on payrolls in December" John Ryding, chief economist at RDQ Economics, told Reuters.

Alcoa , Intel and Travelersled the Dow.

Microsoft and McDonald's were at the bottom of the Dow pack.

Investors were likely locking profits in Microsoft, which is up 59 percent for the year. Oracle , which is up 40 percent for the year, also declined.

Chips got a boost after Kaufman Bros upgraded Marvell Technologyand Nvidiato "buy," citing improved demand for personal computers.

Among other news out of the sector today, Broadcom settled a class action lawsuit related to stock-option backdating.

Kaufman Bros. also raised its price target on Apple to $253 from $235, with a "buy" rating.

The Treasury's $32 billion 7-year auction was met with strong demand. Investors got a high yield of 3.345 percent. The bid-to-cover ratio, which measures the amount of money put up against the total dollar amount, was 2.72.

The Mortgage Bankers Association, which ordinarily issues its weekly mortgage applications report on Wednesday, will not do so this time around because of the Christmas and New Year's holidays. Instead, it will report on two weeks' worth of data next Wednesday.

Early results show retailers had a better Christmas than expected but market pros cautioned that investors will need to be a lot more selective when buying stocks in the sector.

"Over the past year and a half, as the economy's gone south, it's really separated the men from the boys in retail," Patti Edwards of Storehouse Partners told Reuters. "It is so much more of a stock picker's market. You have to absolutely know the companies and walk the stores."

Edwards' picks include Target , Wal-Mart , Costco and Kohl's . She also said J Crew Groupdid "phenomenally well" this holiday season, offering with attractive clothing and little discounting.

Winterizing Your Portfolio - A CNBC Special Report
Winterizing Your Portfolio - A CNBC Special Report

Pfizer fell after the drug maker ended a late-stage study of an experimental lung cancer drug, after it resulted in a higher rate of side effects among patients who took it compared to those who did not. Pfizer does say it did not end the trial for safety reasons.

Aetna also skidded as the health insurer said it expects to take a charge of up to $65 million in the fourth quarter to cover layoff and consolidation costs.

Volume was once again less than half the normal average, clocking in at 644.4 million, compared with about 1.5 billion on a typical day.

The recent rally seemed to lose steam in the past few days but it's all but certain stocks will end 2009 with their best yearly advances since 2003, and will end December with gains for the month.

Still to Come:

THURSDAY: Weekly jobless claims
FRIDAY: New Year's Day — all US financial markets closed

Send comments to cindy.perman@nbcuni.com.