Waiting for the Fed

NEW YORK (CNNMoney.com) -- Stocks reversed course Tuesday afternoon after an early selloff, but were only narrowly higher as Wall Street eagerly awaited the outcome of the latest Federal Reserve meeting.

The Dow Jones industrial average (up 39.02 to 13,507.80, Charts) gained 0.2 percent with 2-1/2 hours remaining in the session.

The broader S&P 500 (up 7.44 to 1,475.11, Charts) rose over 0.3 percent, while the tech-fueled Nasdaq Composite index (up 4.58 to 2,551.91, Charts) edged higher.

Stocks retreated at the start of the session following a Labor Department report on worker productivity that came in slightly below estimates, while the inflation component in the report was slightly higher than expected.

"I think that combination got the ball rolling lower before the open," said Scott Wren, senior equity strategist at A.G. Edwards & Sons. "I just really think that the market is not going to do too much before the Fed statement."

Wall Street is eagerly anticipating the Fed policy meeting. The central bank is expected to leave interest rates unchanged at 5.25 percent when it makes its rate decision at 2:15 p.m. ET.

Investors, however, will be paying particularly close attention to the accompanying statement for any clues about the central bank's outlook on interest rates and its stance on the recent woes in the credit markets, which have kept Wall Street on edge.

Investors around the world have been rattled by signs of tougher conditions in credit markets, since tighter credit could raise the cost of borrowing for companies, hurting corporate earnings. This is likely to slow the buyout boom that has helped prop up stock prices.

But with the scope of recent credit market woes still undetermined, Wren believes that the Fed statement will not do much to help cool the market's recent volatility.

"It's going to be tough for the Fed to say anything in a brief statement that is really going to soothe those particular fears," he said.

Stocks bounced back Monday from a devastating selloff late last week with the Dow soaring 286 points, posting its biggest single day point gain since October 2002, helped by financial sector strength and cooling credit market fears.

A number of companies reported earnings before the opening bell, including Tyco International (down $0.16 to $47.84, Charts), which reported a profit that topped Wall Street estimates.

Power provider Duke Energy (up $0.61 to $18.51, Charts, Fortune 500) posted lower quarterly results, but fared better than analysts' projections.

Leading insurance broker Marsh & McLennan (down $1.05 to $26.60, Charts, Fortune 500) reported modestly higher earnings but it missed forecasts, hurt by increased operating expenses.

Casino operator Wynn Resorts (up $14.30 to $121.69, Charts) reported sharply higher earnings that blew past Wall Street estimates, sending its shares over 12 percent higher on the Nasdaq.

Warner Music Group's losses widened in the most recent quarter, falling short of projections, hurt by slower music sales. Warner (down $1.04 to $9.99, Charts) shares fell over 9 percent in afternoon trade.

Tech giant Cisco Systems (down $0.22 to $29.29, Charts, Fortune 500) is scheduled to report results after the closing bell.

In corporate news, a judge overturned a $1.5 billion ruling against Microsoft (down $0.19 to $29.35, Charts, Fortune 500), saying the software maker didn't violate audio patents held by French-U.S. rival Alcatel-Lucent (down $0.08 to $11.25, Charts).

Microsoft also said it's cutting the price of the Xbox 360 by 13 percent in the United States, hoping to boost holiday sales.

Market breadth was positive. Winners edged out losers on the New York Stock Exchange on volume of 1.06 billion shares. Advancers topped decliners on the Nasdaq on volume of 1.33 billion shares.

Oil prices continued to ease after tumbling over $3 a barrel in Monday trade. U.S. crude for September delivery fell 16 cents to $71.90 a barrel on the New York Mercantile Exchange.

Treasurys were little changed, with the yield on the benchmark 10-year note holding steady at 4.74 percent from late Monday.

The dollar gained against the euro and eased versus the yen.

COMEX gold for December fell $1.10 to $682.20 an ounce.

Overseas, European markets finished higher, while Asian markets were mixed.