Stocks stage late-day run

Video

More video

Foreclosures soared in 2007 with 405,000 households losing their homes. Play video

---

Investors expect the central bank to cut rates by another half-percentage point during their two day meeting. Play video

---

Standard and Poor's strategist Sam Stovall on upcoming earnings and the Fed meeting. Play video

Quick Vote

Has the housing market hit bottom?

• Yes
• No
• Not sure

or View results

NEW YORK (CNNMoney.com) -- Stocks staged a late-session rally Tuesday, gaining for the second day in a row as investors welcomed a surprisingly strong read on durable goods orders and some upbeat earnings on the first day of the Federal Reserve policy meeting.

The Dow Jones industrial average (INDU) added almost 100 points or 0.8%. The broader Standard & Poor's 500 (SPX) index gained 0.7%. The Nasdaq composite (COMP) rose 0.4%.

Stocks had rallied Monday as investors scooped up some of the shares that were battered in the recent selloff amid bets that the Federal Reserve will keep cutting interest rates.

But investors struggled to extend the rally Tuesday, with tech stocks failing to keep up with blue chips for most of the session.

By the late afternoon, the tone had turned positive again, with 2 out of 3 Dow components rising, led by AIG, Alcoa, Boeing, AT&T and JP Morgan.

The central bank announced an emergency interest rate cut last week, lowering the fed funds rate, a key short-term bank lending rate, by three-quarters of a percentage point to 3.5%, following a series of U.S. and global market declines on recession fears.

It was the biggest cut since 1984 and helped the stock market stabilize last week, along with the government's fiscal stimulus plan.

But now investors are betting that the central bank, meeting Tuesday and Wednesday, will cut the fed funds rate by an additional half-percentage point, to 3%.

Failure to do so would likely spark a big stock selloff, said Dean Barber, president at Barber Financial Group. Yet, the mood is such that even if the Fed does cut by a half-percentage point, stocks will likely selloff, he said, with some investors wanting another three-quarters of a percentage point cut.

"I think that the Fed will end up disappointing investors tomorrow with the size of the cut and the language in the statement," Barber said. "There's still so much uncertainty out there that I can't see the Fed decision lifting stocks."

U.S. stocks have tanked for most of January on fears that the credit and housing market crises will send the economy into a recession, if it isn't there already.

While the lower rates and the Fed's series of auctions have helped the banks, that hasn't had an impact on consumers since the banks are still not increasing their lending to individuals. On Tuesday, the Fed announced the results from the latest $30 billion auction.

Tuesday brought a mix of news on the economic front.

Durable goods orders to factories jumped by 5.2% in December, the government reported, more than doubling analysts' forecasts. (Full story).

The January consumer confidence index fell less than expected, slipping to 87.9 against forecasts for a reading of 87. The confidence index stood at a revised 90.6 in the previous month.

A separate government report showed the biggest annual drop in home ownership in four decades.

And in other housing market news, foreclosures surged 75% in 2007, according to an industry report released Tuesday.

In his final State of the Union address Monday night, President Bush called for the swift passage of the proposed $150 billion fiscal stimulus package, the details of which were announced last week. (Full story).

After the close Monday, American Express (AXP, Fortune 500) reported lower earnings that met estimates on higher revenue that missed estimates. AmEx stock initially dipped Tuesday morning, before rebounding.

Fellow Dow component 3M (MMM, Fortune 500) released results Tuesday morning. 3M reported weaker earnings and higher revenue, both of which topped expectations. Shares were little changed.

Mortgage lender Countrywide Financial (CFC, Fortune 500) said it swung to a quarterly loss, versus a profit a year ago, due to rising costs stemming from more borrowers defaulting on their loans. However, shares rose as investors mulled comments from merger partner Bank of America (BAC, Fortune 500) that it is still planning to go ahead with the deal to buy the troubled company.

VMWare (VMW), which makes visualization software, reported quarterly profit that missed expectations, sending shares 33% lower.

EMC (EMC, Fortune 500), which is a majority owner of VMWare, tumbled almost 8%, despite reporting earnings that topped estimates.

In other corporate news, Wal-Mart Stores (WMT, Fortune 500) said it will offer discounts of up to 30% on groceries and other items to keep shoppers spending despite the economic slowdown. (Full story).

Walt Disney (DIS, Fortune 500) slipped over 2% after Citigroup downgraded it to "sell" from "hold," saying that the weak economy could limit attendance at its theme parks.

Market breadth was positive. On the New York Stock Exchange, winners beat losers by nearly two to one on volume of 1.21 billion shares. On the Nasdaq, advancers topped decliners four to three on volume of 1.82 billion shares.

Treasury prices slipped, raising the yield on the 10-year note to 3.65% from 3.58% late Monday. Bond prices and yields move in opposite directions.

In currency trading, the dollar inched higher versus the yen and the euro.

U.S. light crude oil for March delivery rose 65 cents to settle at $91.64 a barrel on the New York Mercantile Exchange.

COMEX gold for April delivery fell $2 to $930.80 an ounce, after settling at an all-time closing high of $932.80 Monday.