The producer price index posted a solid 0.5% gain, raising interest-rate concerns ahead of Bernanke's testimony Wednesday. Upbeat blue-chip earnings were also in focus
Stocks finished modestly higher Tuesday, rebounding in the final hour amid solid blue-chip earnings, declining oil prices and a stronger-than-expected report on wholesale inflation. Trading was volatile ahead of Wednesday's data on consumer inflation and testimony by Federal Reserve Chairman Ben Bernanke.
The Dow Jones industrial rose 51.87 points, or 0.48%, to 10,799.23. The broader Standard & Poor's 500 index edged up 2.37 points, or 0.19%, to 1,236.86. The tech-heavy Nasdaq composite added 5.5 points, or 0.27%, to 2,043.23.
Escalating Mideast tensions have added a war-risk premium to the market, some analysts say. "There is the potential for a more significant drop in prices should conditions deteriorate either with the conflict or with the earnings profile for U.S. companies," notes Joe Battipaglia, chief investment officer at Ryan Beck, in a research report.
As the conflict between Israel and Lebanese militants continued, investors were turning toward economic data Tuesday. The producer price index rose 0.5% in June, the Labor Department said. The core index, which excludes food and energy, edged up 0.2%. This reading suggests a treacherous inflation outlook as the Fed prepares for its Aug. 8 meeting, says Action Economics.
On Wednesday, the overall consumer price index is expected to increase 0.2%, accompanied by a 0.2% rise in the core index. Fed Chairman Bernanke is set to give semi-annual testimony before Congress.
Bernanke's remarks may offer little detail on the Fed's interest-rate plans, analysts say. "We suspect the market will not be as confident of a hike at the end of the week as it is today," notes Marc Chandler, global head of currency strategy at Brown Brothers Harriman.
Elsewhere on the economic front Tuesday, the National Association of Home Builders housing-market index fell to 39 in July, its lowest level in more than 14 years.
Upbeat earnings reports garnered some attention. Coca-Cola (KO ) was higher after the beverage maker posted a 7% increase in second-quarter profit, above analyst expectations.
Fellow Dow component United Technologies (UTX ) was also higher after the industrial conglomerate said second-quarter profit rose 14% on 10% higher sales.
Among other Dow members in the news, Johnson & Johnson (JNJ ) shares fell after the diversified healthcare company posted 9% higher profit on record sales.
Fast-food giant McDonald's (MCD) was modestly higher after Goldman Sachs upgraded the stock from neutral to buy, on the heels of strong second-quarter earnings.
Tech bellwethers IBM (IBM ) and Yahoo (YHOO ) were set to announce quarterly results after the close.
Also in tech, Dell (DELL) was lower on a report the computer maker is selling color-laser printers in Japan at lower prices than competing products to expand market share.
The semiconductor group scraped 14-month lows, but Intel (INTC) was higher amid reports Bank of America maintained its buy rating on the stock. The chipmaker is due to report earnings Wednesday.
Other companies slated to release earnings Wednesday include: Bank of America (BAC ), eBay (EBAY ), J.P. Morgan Chase (JPM ), Juniper Networks (JNPR ), Motorola (MOT ), Qualcomm (QCOM ), and Southwest Airlines (LUV ).
In the financial sector, Merrill Lynch (MER ) was down after reporting a 44% rise in second-quarter profit despite stock-market weakness in May and June. Shares in Charles Schwab (SCHW ) rose following a 35% jump in second-quarter profit.
A reduced sales forecast weighed on retail stocks. Target (TGT ) was lower after the big-box retailer guided its July same-store sales lower. Rival Wal-Mart (WMT ) was also down.
Retail peers Abercrombie & Fitch (ANF ), Best Buy (BBY ), and J.C. Penney (JCP ) were lower after A.G. Edwards downgraded the stocks from buy to hold.
Shares in RadioShack (RSH ) declined following the resignation of the electronics-store chain's chief financial officer.
In the energy markets Tuesday, August West Texas Intermediate crude oil futures closed down $1.76 at $73.54, after touching an all-time record $78.40 on Friday. Profit taking and a lack of worsening Mideast news drove selling, says Action Economics.
European markets finished modestly lower. In London, the Financial Times-Stock Exchange 100 index slipped 19.3 points, or 0.34%, to 5,681.7. Germany's DAX index shed 20.11 points, or 0.37%, to 5,396.85. In Paris, the CAC 40 index was down 15.54 points, or 0.33%, to 4,734.54.
Asian markets finished sharply lower. Japan's Nikkei 225 index declined 408 points, or 2.75%, to 14,437.24. In Hong Kong, the Hang Seng index slipped 20.88 points, or 0.13%, to 16,043.94. Korea's Kospi index lost 21.71 points, or 1.73%, to 1,233.42.
Treasury yields climbed as the solid producer price index fanned fears the Fed may hike interest rates too far. The 10-year note fell in price to 99-30/32 for a yield of 5.13%, while the 30-year bond tumbled to 90-01/32 for a yield of 5.16%.