Wall Street pulls it together

NEW YORK (CNNMoney.com) -- Stocks scraped out an advance Wednesday at the end of a tumultuous session on Wall Street in which worries about the economy and inflation countered attempts at extending the 2006 rally.

The Dow Jones industrial average (up 11.37 to 12,474.52, Charts) gained a few points, closing well off its highs for the session. Earlier in the day, the blue-chip barometer had risen more than 100 points and had hit a fresh record trading high.

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The broader S&P 500 (down 1.67 to 1,416.63, Charts) index lost less than two points, and the Nasdaq (up 7.87 to 2,423.16, Charts) composite added 0.3 percent.

All three major gauges had rallied through the early afternoon, thanks to a 4 percent slide in oil prices and a pair of upbeat economic reports.

But the 2:00 p.m. ET release of the minutes from the last Fed policy meeting knocked the wind out of the rally, reviving worries about inflation and the pace of the slowing economy.

In the minutes, policy-makers noted there was still considerable uncertainty about the pace of core inflation and the impact of the housing market on the economy. The bankers also said employment should slow in the next quarter or so and that downside risks to growth have increased. (Full story).

All of which gave investors a reason to take some profits on the advance, said Art Hogan, chief market analyst at Jefferies & Co.

"We had positive economic news today and some excitement about a new year and new money coming into the market," Hogan said, "and unfortunately that was overshadowed by commentary from the Fed that was more hawkish than what people had hoped."

Investors are looking for evidence that growth is slowing enough to nip the edge off inflation but not enough to send the economy into recession. Bets also remain that the Fed will start cutting interest rates in the first half of the year, after holding them at unchanged for the past four policy meetings.

The minutes did not suggest a rate cut should be expected soon, and that was a disappointment to some investors, Hogan said.

Nonetheless, stocks managed to recover a bit by the close.

Analysts said the advance could recharge as the week wears on, with significant reports due. Thursday brings December sales reports from the nation's retailers, which will encompass the critical holiday period. Thursday also brings readings on factory orders and the services sector of the economy.

Friday brings the December employment report. In addition, Fed Chairman Ben Bernanke speaks at an economic conference Friday.

Stocks slipped Friday at the end of a strong year on Wall Street. Financial markets were closed Monday for New Year's and Tuesday for a day of mourning for President Ford.

After the unusual four-day market closing, investors were anxious to get back to work Wednesday.

That pent-up demand from the long weekend gave stocks a boost in the morning, said Jack Ablin, chief investment officer at Harris Private Bank.

He noted, "Investors probably reviewed their holdings and decided they wanted to put some money to work at the start of the new year."

U.S. light crude oil for February delivery slumped $2.73 to settle at $58.32 a barrel on the New York Mercantile Exchange.

That initially fueled an advance, with investors tending to breathe a sigh of relief in response to lower oil prices. A big drop in oil can mean lower costs and higher earnings for some companies.

However, it also caused a big sell-off in oil-service stocks, which make up a large part of the S&P 500 index.

Exxon Mobil (down $2.52 to $74.11, Charts), Valero Energy (down $1.11 to $50.05, Charts) and Sunoco (down $2.37 to $59.99, Charts) were all lower. The Amex Oil (down 37.72 to 1,150.45, Charts) index lost 3.2 percent.

Dow stock General Motors (down $1.27 to $29.45, Charts) fell more than 4 percent following the release of its December sales. Rival Ford Motor (up $0.00 to $7.51, Charts) said sales fell 13 percent in the period. (Full story).

Declines in gold, silver, aluminum and other commodities weighed on the underlying stocks.

Dow component Alcoa (down $0.68 to $29.33, Charts) slumped 2.3 percent, and rival Alcan (down $2.70 to $46.04, Charts) lost 5.5 percent.

COMEX gold for February delivery slumped $8.20 to settle at $629.80 an ounce.

That sent a variety of metal stocks lower, with the Amex Gold Bugs (down $13.78 to $324.46, Charts) index losing 4 percent.

In corporate news, Home Depot (up $0.91 to $41.07, Charts) CEO Robert Nardelli is leaving the company. Nardelli, who was criticized for the size of his pay package and for his management style, will leave with $210 million in severance. (Full story).

Home Depot shares gained 2.3 percent, while rival Lowe's (up $0.89 to $32.04, Charts) gained about 1.5 percent.

In addition to Home Depot, fellow Dow retailer Wal-Mart Stores (up $1.37 to $47.55, Charts) rose after saying December sales at stores open a year or more grew more than expected.

Market breadth was positive, and volume was heavy. On the New York Stock Exchange, winners edged losers by a narrow margin on volume of 2.61 billion shares. On the Nasdaq, advancers narrowly beat decliners as nearly 2.5 billion shares changed hands.

Treasury prices gained modestly, lowering the yield on the benchmark 10-year note to 4.66 percent from 4.67 percent. Bond prices and yields move in opposite directions.

On the economic front, the Institute for Supply Management's manufacturing index rose to 51.4 in December, topping forecasts for a rise to 50. The index stood at 49.5 in November. A reading below 50 indicates contraction in the sector.

November construction spending fell 0.2 percent, versus forecasts for a drop of 0.6 percent.

Minutes from the December Federal Reserve policy meeting were released Wednesday.

Investors were still riding high on the momentum of 2006, the fourth up year in a row for the S&P 500 and Nasdaq composite. It was the third of four upbeat years for the Dow, after the blue-chip average fell slightly in 2005.

The S&P gained 13.6 percent last year, and the Nasdaq gained 9.5 percent. The Dow industrials gained 16.3 percent.

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