NEW YORK (CNN/Money) -
U.S. stock markets closed higher Tuesday, capping off a volatile session on an up note as investors responded to some bullish corporate news and digested the tweaking in the wording of the Federal Reserve's latest monetary policy statement.
The Dow Jones industrial average (up 81.78 to 10184.67, Charts) gained 0.8 percent, the Standard & Poor's 500 (up 6.21 to 1110.70, Charts) index gained almost 0.6 percent and the Nasdaq composite (up 3.89 to 1943.09, Charts) gained around 0.2 percent. All three had swung back and forth across the breakeven line throughout the session.
The session's gains partly reflected a bounce after the major indexes were knocked to their lows of the year Monday, with the Dow closing at a 3-month low. The gains also came as a delayed response to the Federal Reserve's decision to leave interest rates unchanged, as expected.
But despite Tuesday's gains, many analysts think that Wall Street is not quite through with a period of consolidation after the rally of 2003 and early 2004. Stocks had been hammered hard for five of the last six sessions prior to Tuesday, and drifted for about seven weeks before that.
"We're trying to get a little rally going short-term, but today was a bit nerve-wracking," said Paul Mendelsohn, chief investment strategist at Windham Financial Services.
"We're at a very critical juncture here," he added. "We're right at support levels that we must hold, and at the same time we have critical events taking place at the end of the week, namely the options expirations."
Friday is a quadruple expiration day, the last trading day before stock index futures and options, as well as individual stock futures and options, all expire simultaneously. The sessions leading up to this 'quadruple witching' tend to be volatile.
Tuesday's volatility was likely tied to professional traders and managers positioning themselves for the expiration, as well as the fact that volume is quite low, Mendelsohn said.
Trading for the next few sessions is bound to remain volatile. Wednesday's only economic data is the consumer prices report for February, expected to show little change, as inflation remains a distant concern.
Wednesday also brings earnings from Bear Stearns (BSC: Research, Estimates) and FedEx (FDX: Research, Estimates) before the bell. Lehman's upbeat earnings Tuesday probably bodes well for Bear Stearns Wednesday. The bank is expected to have earned $2.05 per share, up from $2 a year earlier, according to First Call estimates. FedEx probably earned 67 cents per share, up from 49 cents a year earlier, also per First Call estimates.
Tuesday's market
Among Tuesday's news was the 2:15 p.m. ET announcement from the Federal Reserve, which provided few surprises. The central bank opted to keep the target for the Fed funds rate, an overnight bank lending rate, at 1 percent, a more than 40-year low, in line with most economists' expectations.
The Fed's policy statement was mostly unchanged, with the central bank reiterating its "patient" stance on rates. What did change was an acknowledgement that "while job losses have slowed, new hiring has lagged," essentially confirming both the weakness in the labor market and that rates won't budge until hiring does.
This news seemed to initially unnerve stock investors, and markets turned sharply lower for the next hour. But stocks crept back up near the close, as investors found bargains after the afternoon selloff and Monday's big decline.
The major indexes had also surged across the board in the morning, but struggled in the afternoon amid talk of bomb threats that revived fears about terrorism in the wake of last week's bombings in Madrid that killed 201 people and injured hundreds of others. Rumors about a subway bomb scare in New York were proven false. However, the French government confirmed a rumor that it had received threats of the potential for an attack from an Islamist group. The government said it was investigating the threats.
Investors mostly shrugged off the session's otherwise muted economic news, which showed the housing market cooled a bit in February.
What moved
After the close Monday, manufacturer and Dow component 3M (MMM: up $3.94 to $78.81, Research, Estimates) raised its first-quarter and full-year earnings guidance due to better growth trends in a number of its businesses. The company is seen as a proxy for the overall economy, with demand for its products linked to the health of U.S. and global business. 3M's shares bounced 5.3 percent.
The blue chips were generally stronger than the rest of the market, with 26 out of 30 Dow components gaining. Citigroup (C: up $0.87 to $49.99, Research, Estimates) and Caterpillar (CAT: up $1.37 to $75.35, Research, Estimates) were the next biggest gainers by percentage, both adding around 1.8 percent.
Before the bell Tuesday, Lehman Bros. (LEH: Research, Estimates) reported earnings of $2.21 per share, up substantially from the $1.15 per share it reported a year earlier and better than the $1.67 per share analysts surveyed by Briefing.com were expecting.
Lehman (LEH: up $0.39 to $85.04, Research, Estimates) initially rose 2 percent, giving a lift to other brokerages, but was unable to hold those gains through the session.
Regardless, the report seemed to be a good omen for the other Wall Street banks due to report results later this week, including Bear Stearns Wednesday and Morgan Stanley Thursday.
A merger in banking was a positive as well. French bank BNP Paribas said its U.S. division BancWest will buy Community First Bankshares (CFBX: up $4.11 to $32.11, Research, Estimates) for $1.2 billion in cash, sending shares of Community First up almost 15 percent.
Also among the gainers, Metro-Goldwyn-Mayer (MGM: up $1.95 to $18.15, Research, Estimates) surged 12 percent after it said Monday it was considering paying a one-time dividend distribution to investors as part of its pledge to return money to shareholders.
Web search firm Mamma.com (MAMA: up $1.92 to $9.78, Research, Estimates) surged 24 percent in active trade after Dallas Mavericks' owner Mark Cuban revealed in a regulatory filing that he holds a 6.3 percent stake in the company.
Market breadth was mixed. On the New York Stock Exchange, winners beat losers nine to seven as 1.47 billion shares changed hands. On the Nasdaq, decliners edged advancers by a narrow margin as 1.94 billion shares traded.
After spending the morning slightly lower, Treasury prices reversed course in the afternoon, turning higher, with the 10-year note gaining 20/32 of a point in price, pushing its yield down to 3.68 percent from 3.76 percent late Monday. The dollar fell versus the yen and euro.
NYMEX light sweet crude oil futures lost 2 cents to $36.68 a barrel. COMEX gold gained $2.90 to settle at $402.60 an ounce.
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