Stocks churn in choppy trading

NEW YORK (CNNMoney.com) -- Stocks struggled at midday Wednesday as investors welcomed upbeat November retail sales and mergers in the airline industry but held back a bit amid higher oil prices and a run-up in Treasury bond yields.

The Dow Jones industrial average (up 12.26 to 12,327.84, Charts) gained a few points around two and a half hours into the session, after hitting a fresh all-time trading high in the morning.

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The broader S&P 500 index (up 2.10 to 1,413.66, Charts) added around 0.2 percent. The tech-fueled Nasdaq (down 2.38 to 2,429.22, Charts) composite trended lower.

The strong retail sales and deals news had set stocks up for a positive session, but that was countered by a run-up in oil prices, after a weaker than expected weekly energy inventories report.

"The oil number sent us down a bit in the morning, but we seem to be stabilizing," said Joseph Saluzzi, co-head of equity trading at Themis Trading.

Adding to the market's hesitation: higher bond yields and lingering concerns about Federal Reserve policy following Tuesday's policy meeting.

Stocks are bound to be choppy in the short run, Saluzzi said, with volume likely to thin out in the next week or so, as people head off for vacations.

Investors may also be a bit reluctant to push stocks much higher after a big rally over the past four and a half months. In the year to date, the Dow is up almost 15 percent, as of Tuesday's close, and the S&P 500 is up 13.1 percent. The Nasdaq is up 10.3 percent, and the Russell 2000 (up 0.58 to 788.99, Charts) small-cap index is up 17.1 percent.

Stocks slipped Tuesday after the Federal Reserve held interest rates unchanged as expected but issued discouraging comments about the housing market and the economic slowdown in its statement.

The statement seemed to dampen hopes that the central bank will begin cutting interest rates as soon as the first quarter of next year.

Retail sales in November surged, the government reported Wednesday morning, in an encouraging start to the all-important holiday shopping period. Full story.

U.S. light crude oil for January delivery jumped 66 cents to $61.68 a barrel on the New York Mercantile Exchange after the weekly energy inventory report showed a drop in crude oil and gasoline supplies.

Among stock movers, air carriers were active. UAL (up $2.20 to $45.43, Charts)'s United Airlines and Continental (up $2.21 to $45.09, Charts) are reportedly in talks about a merger, according to published reports.

Additionally, AirTran (up $0.20 to $12.55, Charts) said it has made an offer to buy Midwest Air (up $1.95 to $11.03, Charts) for about $210 million in a deal that would merge the two regional air carriers.

That gave a lift to a variety of airline stocks, with the Amex Airline (Charts) index adding 2.5 percent.

The spike in oil prices lifted oil services stocks such as Exxon Mobil (up $0.91 to $77.16, Charts) and Valero Energy (up $0.26 to $54.97, Charts). The Amex Oil (up 9.16 to 1,220.29, Charts) index added 0.8 percent.

Apple Computer (up $1.48 to $87.62, Charts) rallied on a pair of bullish analyst notes. Morgan Stanley boosted its price target, and UBS reiterated a "buy" rating on the stock, saying that it thinks Apple will have a branded cell phone by the start of the second quarter of 2007, The Wall Street Journal reported.

Atmel (up $0.61 to $5.89, Charts) surged 12 percent in active Nasdaq trading after the chip maker announced job cuts and said it was selling certain facilities as part of a restructuring.

Market breadth was positive. On the New York Stock Exchange, winners beat losers 9 to 7 on volume of 580 million shares. On the Nasdaq, advancers topped decliners by a slim margin on volume of 750 million shares.

Treasury prices tumbled, boosting the yield on the benchmark 10-year note to 4.56 percent from about 4.49 percent late Tuesday. Bond prices and yields move in opposite directions.

In currency trading, the dollar rose against the yen and euro.

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