Stocks struggle higher

NEW YORK (CNNMoney.com) -- Stocks rose near midday Thursday, finding a little stability after a volatile morning influenced by see-sawing oil prices, upbeat economic reports and the aftermath of the previous session's brutal selloff.

The Dow Jones industrial average (up 52.67 to 13,358.14, Charts) rose 0.4 percent more than two hours into the session, while the broader S&P 500 (up 5.35 to 1,477.70, Charts) index gained 0.3 percent. The Nasdaq Composite (up 7.36 to 2,613.31, Charts) added 0.2 percent.

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Stocks had risen modestly in the early going as investors welcomed upbeat August retail sales, a drop in jobless claims and an economic report that showed increased productivity that was not inflationary.

But gains dissipated on spiking oil prices and the mid-morning release of the Institute for Supply Management's services sector index, which was stronger than expected. Investors are looking for economic news to add to bets that the Federal Reserve can cut interest rates at its next policy meeting, and strong reports would seem to lessen the likelihood of the Fed stepping in.

Meanwhile, another mid-morning report showed a record number of homes entered the foreclosure process in the second-quarter, reflecting the ongoing problems in subprime and housing.

A pullback in oil prices following the release of the weekly oil inventories report helped stocks stabilize again in late morning.

Trading is likely to remain choppy as investors continue to weigh the competing influences in the market, and gear up for Friday's critical monthly employment report.

"I don't think you're going to see any real direction today one way or the other, because everyone is basically waiting for the jobs report," said Ron Kiddoo, chief investment officer at Cozad Asset Management.

On Thursday, the ADP employment report, which measures private sector employment, showed surprisingly weak job growth, and could be a harbinger for Friday's broader national report.

In corporate news, Wal-Mart Stores reported that August sales at stores open a year or more, a retail measure called same-store sales, rose a better-than-expected 3.1 percent. Shares of Wal-Mart (up $0.41 to $42.86, Charts, Fortune 500), a Dow component, inched higher.

The world's largest retailer was one of many chain stores reporting strong August sales. The relative strength was a relief for investors worried that the turmoil in the housing market and spike in commodities prices would drag on consumer spending.

Oil and gold prices rose, giving a lift to a variety of energy and mining and metals stocks.

The Amex Oil index added 0.8 percent and the Amex Gold Bugs (up $19.39 to $354.52, Charts) index gained 4.2 percent.

U.S. light crude oil for October delivery rose $1.37 to $77.10 a barrel on the New York Mercantile Exchange. Oil prices initially trimmed gains after the weekly inventory report showed a big rise in distillates, which are used to make heating oil. However, prices bounced back up as the morning wore on.

COMEX gold for December delivery rose $5.10 to $695.80 an ounce.

Thursday morning brought a number of economic reports, most of which topped the estimates of economists surveyed by Briefing.com.

The revised reading on second-quarter productivity rose to a 2.6 percent annual growth rate from an initial reading of 1.8 percent, the government reported. Meanwhile, unit-labor costs, which measure wage inflation, slowed to an annual growth rate of 1.4 percent from an initial reading of 2.1 percent.

A separate report showed a drop in weekly jobless claims last week.

The Institute for Supply Management's August report on the services sector of the economy, released after the start of trade, stood at 55.8, unchanged from the previous month and more robust than what economists were expecting.

Treasury prices slipped a bit after Wednesday's big rally, raising the yield on the 10-year note to 4.47 percent from 4.46 percent late Wednesday. Bond prices and yields move in opposite directions.

In currency trading, the dollar was little changed versus the euro and the yen.

Stocks slumped Wednesday after reports showed weak pending home sales, anemic private sector employment and the latest woes for the financial sector. Additionally, the Federal Reserve's 'beige book' report on the economy showed enough growth to dampen hopes that the central bank will cut interest rates later this month.

The slew of strong economic reports Thursday morning may have added to worries that the Federal Reserve will not cut interest rates, as stock investors have been betting.

The central bank said Thursday that it had added $31.25 billion of temporary reserves to the banking system in three installments. While the Fed regularly adds funds to the system, it has joined banks around the world in increasing its efforts of late, as a means of keeping liquidity flowing.

This has been both a comfort and a concern to stock investors, in that it has added to bets that the Federal Reserve won't cut interest rates, but will instead help soothe credit market turmoil through these infusions.

In mid-August, the central bank cut the discount rate, which effects bank loans, by a half-percentage point, as a means of restoring stability to financial markets that had been rocked by worries about tightening credit and the subprime mortgage mess. Stock investors have been betting that the Fed will also cut the fed funds rate, a key overnight bank lending rate that effects consumer loans, when the policy-makers meet on Sept. 18.