Stocks drift ahead of Fed

NEW YORK (CNNMoney.com) -- Stocks clung to modest gains Monday morning, as investors eyed oil prices near record highs above $93 a barrel, ahead of the start of the Federal Reserve's two-day policy meeting.

The Dow Jones industrial average (Charts) gained 0.4 percent nearly 2 hours into the session. The S&P 500 (Charts) index and the Nasdaq composite (Charts) both added 0.3 percent.

Stocks surged Friday in a broad-based rally, and some of that momentum spilled over to Monday, as investors continued to bet that the Fed will cut rates again.

Central bank policy makers meeting Tuesday and Wednesday are expected to cut rates for the second time in a row.

The Fed cut interest rates last month for the first time in four years, lowering the fed funds rate, a key short-term interest rate, by a half-percentage point to 4.75 percent. The cut reflected worries that the credit and mortgage market turmoil could spread to the broader economy.

Traders are betting that the Federal Reserve will cut interest rates again this week, lowering the Fed funds rate to at least 4.50 percent.

Ahead of that, Wall Streeters kept an eye on oil, which has accelerated the pace of its recent upward climb.

U.S. light crude oil for December delivery rose 59 cents to $92.45 a barrel on the New York Mercantile Exchange. Crude reached a record $93.20 in electronic trading.

In corporate news, Merrill Lynch CEO Stanley O'Neal is widely expected to announce his resignation from the firm, according to published reports, one week after the brokerage said it lost $8 billion in the third quarter due to bad mortgage bets.

Merrill (Charts, Fortune 500) shares were modestly lower.

Verizon Communications (Charts, Fortune 500) reported that earnings fell from a year ago, but nonetheless topped forecasts. Shares of the Dow component rose less than 1 percent.

Office Depot (Charts) shares plunged 14 percent after the retailer said the release of its earnings will be delayed due to possible accounting irregularities found by an independent review. The news prompted a number of firms to downgrade the stock, AP reported.

The run up in oil prices lifted shares of select oil services firms, including Exxon Mobil (Charts, Fortune 500).

Market breadth was mixed. On the New York Stock Exchange, winners beat losers nine to seven on volume of 390 million shares. On the Nasdaq, decliners and advancers were narrowly split on volume of 690 million shares.

COMEX gold for December delivery rose $3.50 to $791.30 an ounce.

Treasury prices slipped, raising the yield on the benchmark 10-year note to 4.40 percent from 4.38 percent late Friday. Bond prices and yields move in opposite directions.

In currency trading, the dollar fell to another all-time low versus the euro and gained against the yen.