Wall Street pared its losses to trade mixed Tuesday, as oil prices retreated due to a stronger dollar and the U.S. government reducing its oil consumption forecast.
Light, sweet crude futures, which rose above $137 a barrel early in the day, dropped back toward $132 a barrel by afternoon trading on the New York Mercantile Exchange.
The pullback in oil prices, which last week hit a record above $139, encouraged investors to return to the stock market _ particularly the battered financial sector, which took a beating Monday after Lehman Brothers Holdings Inc. reported a larger-than-expected quarterly loss.
"A lot of money is flowing out of the commodities and making its way into the market and into the Dow and the S&P," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research, referring to the Dow Jones industrial average and the Standard & Poor's 500 index.
The stock market remained volatile, however, given that Federal Reserve Chairman Ben Bernanke late Monday said that a substantial economic downturn seems unlikely, but that inflation risks are growing. His remarks raised expectations that the central bank might hike interest rates later this year to fight inflation. Making it more expensive to borrow money could jeopardize a rebound in the economy.
And although investors got some temporary relief from the oil market Tuesday, their long-term concerns remain that high energy costs could stymie consumer spending and overall economic growth. It is possible oil prices will stay high for some time _ though the International Energy Agency lowered its global oil demand prediction Tuesday, it also said oil-producing nations outside OPEC are having a tough time keeping up with global demand.
In early afternoon trading, the Dow Jones industrial average rose 51.94, or 0.42 percent, to 12,332.26, though declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange. Volume came to 776.1 million shares.
Broader stock indicators were mixed, rebounding from steeper losses. The Standard & Poor's 500 index rose 1.29, or 0.09 percent, to 1,363.05, and the Nasdaq composite index fell 1.52, or 0.06 percent, to 2,457.94.
Bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 4.10 percent from 3.99 percent late Monday.
The dollar rose against other major currencies, while gold prices tumbled.
The Fed has been worried that elevated commodities prices might curb consumers' appetite to buy discretionary items. This would pose a serious threat to the U.S. economy, as consumer spending accounts for more than two-thirds of economic activity.
"If you bet against the consumer over the past several years you would've been wrong. The consumer has held up surprisingly well. However, at some point there is a breaking point. I think some people believe we may be approaching that," said Chris Colarik, a portfolio manager at Glenmede Investment Management in Philadelphia.
The Commerce Department reported the U.S. trade deficit had a larger-than-expected jump in April. Higher oil prices and an increase in consumption for crude offset a climb in exports, the government said.
The deficit in international trade of goods and services increased by 7.8 percent to $60.90 billion from March's revised $56.49 billion. The trade gap was forecast to rise to $59.5 billion, according to economists surveyed by Thomson/IFR.
Billionaire Kirk Kerkorian's investment company said its tender offer for 20 million additional shares of Ford Motor Co. attracted a huge response and will easily enable it to increase its stake in the automaker to about 5.5 percent. The Dearborn, Mich.-based automaker said last month it no longer expected to return to profitability by 2009. Ford fell 21 cents, or 3 percent, to $6.15.
XTO Energy Inc. said it is acquiring privately held Hunt Petroleum Corp. for $4.19 billion in cash and stock. XTO said Hunt's assets, plus last month's acquisition of Headington Oil Co., prompted it to increase its 2008 production growth target to 28 to 30 percent. XTO fell 55 cents to $67.17.
The Russell 2000 index of smaller companies fell 1.02, or 0.14 percent, to 734.10.
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