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NEW YORK (CNNMoney.com) -
Blue chip stocks gained for a second straight day Wednesday, but investors remained cautious ahead of a bevy of economic reports due Thursday.
Bond prices jumped, pushing long-term rates lower, while the dollar posted its biggest one-day drop against the yen in nearly four years. Gold prices sank.
The Dow Jones industrial average (up 59.79 to 10,883.51, Charts) closed about 0.6 percent higher, and the broader S&P 500 (up 5.31 to 1,272.74, Charts) index climbed about 0.4 percent.
The Nasdaq composite (down 2.24 to 2,262.59, Charts) was the laggard, closing down slightly as an Apple downgrade pulled techs lower.
After the bell, Amgen (Research), the world's largest biotech company, said it would buy its peer Abgenix Inc. (Research) for about $2.2 billion in cash. Abgenix stock rose about 48 percent in after-hours trade.
Traders will look for multiple economic reports Thursday to move the market, including a reading on inflation in the Consumer Price Index, an industrial production report and the weekly jobless claims numbers.
"Tomorrow is going to be a real signpost," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "The CPI is going to be critical. It has the potential to really move the market."
Analysts are looking for November's core CPI, which excludes volatile food and energy prices, to rise by 0.2 percent, according to Briefing.com. Ablin said anything higher than that could send stocks down, as it may lead the Fed to become more aggressive in its interest rate policy.
Stock futures were higher late Wednesday, pointing to a positive opening for stocks Thursday.
Wednesday's action
Falling oil prices gave the market a boost Wednesday.
U.S. light crude oil for January delivery fell 52 cents to close at $60.85 a barrel on the New York Mercantile Exchange. The front-month contract briefly jumped to $61.75 a barrel, following the weekly oil inventory report, which showed weaker supplies of distillates used for heating oil.
Blue chips also rose Tuesday after Fed policymakers boosted a key short-term interest rate, as expected, and changed the language of its statement to suggest that an end to the central bank's nearly 18-month-old rate-hike campaign may be near.
"I think the market sees inflation as contained," said Peter Cardillo, chief market analyst at SW Bach & Co. "But the debate [over inflation] will continue, because the Fed left the door open as far as how inflation is related to economic activity is concerned."
To that end, investors played it safe, awaiting Thursday's closely watched CPI report.
The October trade balance report jumped to a fresh record Wednesday, but a dramatic drop in the cost of imports in November, including oil, helped keep inflation fears at bay.
The perception of contained inflation fueled a rally in the Treasury market.
Treasury prices rallied, lowering the yield on the 10-year note to 4.45 percent from 4.52 percent late Tuesday. Treasury prices and yields move in opposite directions.
However, the Fed statement and the whopping trade deficit report sent the dollar even lower against the euro and the yen. The euro traded near a six-week high against the dollar, and the greenback lost 2.2 percent against the yen, its steepest one-day fall in almost four years.
COMEX gold for February delivery tumbled $14.60 to settle at $509.50 an ounce.
Market breadth was mixed. On the New York Stock Exchange, winners beat losers five to three on volume of 1.6 billion shares. On the Nasdaq, decliners narrowly edged out advancers as 1.7 billion shares changed hands.
Among stock movers, Honeywell (up $1.62 to $37.50, Research) jumped more than 4 percent, lifting the Dow industrials, after saying it expected 2006 earnings to increase by up to 30 percent, due to strong aircraft demand. (Full story)
Other top performers on the Dow 30 include Merck, Pfizer and Boeing.
Merck (up $0.30 to $29.20, Research) shares rose after the Food and Drug Administration released a report saying that Merck's experimental vaccine for shingles appeared safe and effective. The FDA report comes one day before a panel of outside medical experts reviews the vaccine. (Full story)
Pfizer (up $0.54 to $22.85, Research) extended gains posted in the previous session, up more than 2 percent.
And Boeing (up $0.86 to $71.45, Research) added over 1 percent on news that the company won a $10 billion order from Qantas Airways Ltd. (Full story)
A number of homebuilders also gained, with the Dow Jones Home Construction (up $24.89 to $961.60, Research) index up 2.6 percent.
On the other side of the ledger, tech shares took a hit after Apple Computer (down $2.97 to $72.01, Research) tumbled about 4 percent on downgrades from Banc of America Securities and Bear Stearns. Both firms cited concerns about how fast the stock has run up recently. (Full story)
Biotechs also weighed on the Nasdaq. Among movers, SciClone Pharmaceuticals (down $1.54 to $2.31, Research) lost 40 percent after saying that its experimental hepatitis C treatment failed to yield significant results in a late-stage trial.
In deal news, General Dynamics, a defense contractor, said it would buy Anteon International, a tech company focused on defense and security, in a $2.1 billion cash deal.
Shares of General Dynamics (down $0.41 to $111.68, Research) slipped modestly, while Anteon (up $13.25 to $54.02, Research) shares jumped nearly 33 percent in unusually active New York Stock Exchange trade.
And the New York Times reported that FPL Group Inc. (up $0.13 to $43.00, Research) is in talks to buy Constellation Energy Group Inc. (up $4.83 to $61.10, Research) for more than $11 billion. FPL share were little changes, while Constellation Energy shares jumped almost 9 percent.
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