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NEW YORK (CNN/Money) -
Falling oil prices propelled stocks for a second straight session Wednesday, but worries about Hurricane Katrina's impact on the economy and Fed policy limited the market's gains.
As of around 5:30 p.m. ET, Nasdaq and S&P futures pointed to a flat open for stocks, when fair value is taken into account.
The Dow Jones industrial average (up 44.26 to 10,633.50, Charts) rose about 0.4 percent.
The Standard & Poor's 500 (up 2.97 to 1,236.36, Charts) index and the Nasdaq composite (up 5.35 to 2,172.03, Charts) both gained just over 0.2 percent.
Thursday brings a July read on wholesale inventories and the weekly jobless claims. Investors will also be keeping an eye on Texas Instruments (up $0.13 to $33.30, Research) and Intel (down $0.04 to $25.66, Research), which both issue mid-quarter updates after the close.
All three major stock gauges had been choppy through the day, before finding momentum in the last hour.
"Oil was down a lot on the day and that certainly helped the market to support recent gains," said Timothy Ghriskey, chief investment officer at Solaris Asset Management. "There's also money moving from bonds to stocks here, with bonds retreating after the August run."
Ghriskey said that while oil prices and the bond market will remain in focus over the next few weeks, the focus on interest rates will intensify.
The Fed's policy-makers meet Sept. 20 and may still raise short-term interest rates for the 11th consecutive time. But for the first time in a while, there are considerable questions about whether the Fed will signal a pause to its rate-hiking campaign.
In a speech Wednesday afternoon, Chicago Fed president Michael Moskow indicated that the central bank is unlikely to stray from its mission of measured rate hikes, despite the impact of the hurricane.
Moskow, a voting member of the central bank's policy-setting committee, said the Fed is unlikely to deviate from its 14-month campaign due partly to ongoing concerns about inflationary pressures, and since it's still unclear what impact Katrina may have on the economy.
Meanwhile the Fed released its "beige book" survey of business conditions, which showed that economic activity increased from mid-July through August, even as energy prices rose. The survey -- used in making interest-rate decisions -- does not cover the post-Katrina period.
In light of all the potential negatives, the market seemed to hold up well, said Peter Cardillo, chief market analyst at S.W. Bach & Co. "The market is looking forward and beginning to discount a recovery [after Hurricane Katrina]."
The oil effect
U.S. light, sweet crude oil for October delivery sank $1.59 to $64.37 a barrel on the New York Mercantile Exchange, its second straight 2.4 percent decline.
Prices have been retreating since late last week amid signs that the U.S. oil infrastructure is starting to recover, with some refineries reopening. Prices have also scaled back after pledges from 26 countries to release around 60 million barrels of oil from reserves over the next month to counteract the impact of the hurricane.
Second-quarter productivity grew at a slower-than-expected 1.8 percent annual rate, the government said Wednesday morning. Meanwhile, labor costs grew at a faster-than-expected rate.
However, the report covered a period prior to Katrina's impact. Economic reports will not begin to incorporate the impact of Katrina until later in the month.
The hurricane could end up costing at least 400,000 jobs and cut 1 percent off economic growth in the second half, according to an estimate from the Congressional Budget Office, released Wednesday.
But economists say that longer term, several quarters from now, the hurricane may not hurt the economy, with rebuilding efforts likely to bring jobs and capital to impacted regions.
What moved?
McDonald's (up $1.04 to $33.70, Research) jumped 3.2 percent and was the Dow 30's biggest winner on a Bear Stearns upgrade as blue chips helped pull the broader market off its lows.
Other big Dow gainers included 3M (up $1.07 to $73.77, Research), Caterpillar (up $0.56 to $59.07, Research) and Johnson & Johnson (up $1.01 to $64.80, Research).
Ford Motor (up $0.17 to $10.13, Research) inched higher after announcing that it was recalling 3.8 million pickup trucks and SUVs in one of the largest recalls in history.
Apple (down $0.12 to $48.68, Research) shares remained lower after it unveiled its widely awaited device that combines a cell phone with its popular iPod MP3 player.
Among other movers, chipmaker Altera (down $1.69 to $20.11, Research) slipped 7.8 percent after warning that profit margins in the current quarter would miss forecasts.
Electronics For Imaging (up $2.43 to $23.08, Research) rallied 12 percent after boosting its third-quarter earnings and revenue forecast late Tuesday. The digital imaging company attributed the improvement to strong growth of new products.
Shares of Alnylam Pharmaceuticals (up $4.19 to $13.75, Research) rallied 43 percent in unusually active Nasdaq trading after fellow drugmaker Novartis AG (down $0.09 to $16.84, Research) said it would buy a 19.9 percent stake to expand more in the area of gene therapy.
Market breadth was positive. On the New York Mercantile Exchange, winners beat losers nine to eight on volume of 1.49 billion shares. On the Nasdaq, advancers edged decliners eight to seven on volume of 1.5 billion shares.
Treasury prices slipped, raising the yield on the 10-year note to 4.13 percent from 4.08 percent late Tuesday. Treasury prices and yields move in opposite directions.
In currency trading, the dollar gained versus the euro and the yen.
COMEX gold rose 40 cents to settle at $449 an ounce.
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