Stocks rally despite weak economic reports

Major indexes climb on IBM's stock buyback and Moody's reaffirming MBIA's credit rating. Oil settles at a record high.

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By Ben Rooney and Alexandra Twin, CNNMoney.com staff writers

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NEW YORK (CNNMoney.com) -- Stocks closed higher Tuesday, for the third session in a row, as upbeat news from IBM and bond insurer MBIA helped offset a number of discouraging economic reports released earlier in the session.

The Dow Jones industrial average (INDU) rose about 0.9% while the broader Standard & Poor's 500 (SPX) added about 0.7%. The tech laden Nasdaq composite (COMP) also gained more than 0.75%.

Bond prices rose. Crude prices jumped $1.65 a barrel to settle at a record high. The U.S. dollar sank to a record low against the euro.

Shares had slipped in the morning after reports showed spiking wholesale inflation, weakening consumer confidence and more problems for the housing market.

But investors ultimately looked past the negative economic data after blue chip IBM announced it would buy back $15 billion in shares. Stocks continued to climb later in the session when Moody's investor service said it will maintain bond insurer MBIA's credit rating. Towards the close, stocks pared gains.

Economic data will likely play a role in Wednesday's session when reports on new-home sales and durable goods orders are released. Also, the government's weekly energy inventory report is due out Wednesday.

The market has proven to be "quite resilient" despite the discouraging economic reports, according to Peter Cardillo, chief market economist at Avalon Partners.

"The gyrations seem to have narrowed somewhat and the market seems to be looking forward," Cardillo said.

IBM's upbeat outlook combined with positive signs on the bond insurer front helped fuel positive sentiment on Wall Street, Cardillo said.

"There seems to be a fundamental change in psychology," he added.

Comments by Federal Reserve Vice Chairman Donald Kohn, a voting member of the central bank's open market committee, also helped support the markets. Speaking at a university in North Carolina, Kohn signaled that the Fed will "do what is needed" to keep the economy on track.

"These have been difficult times for the U.S. economy," Kohn said. Adding that the Fed has the tools to "promote both price stability and growth over time."

Economic news. The Producer Price Index (PPI), a measure of inflation at the wholesale level, rose 1% in January after rising a revised 0.4% in the previous month. Economists surveyed by Briefing.com had expected PPI to rise 0.4%.

The so-called "core" PPI, which strips out volatile food and energy prices, rose 0.4% after rising 0.2% in the previous month. Economists had expected a 0.2% gain.

The inflation data weighed on investors a day after stocks had rallied on a positive decision ratings agency S&P made on bond insurers' credit ratings.

In other economic news, consumer confidence dropped to a five-year low in February, falling to a reading of 75 from a revised 87.3 in January. Economists thought it would fall to 82.0.

Another report showed that home prices in 20 key markets slumped 9.1% in 2007. The S&P Case/Shiller Home Price index showed the biggest annual drop in its 20-year history.

Corporate news. Dow component, IBM (IBM, Fortune 500) announced that it has raised its full-year outlook and said it would buy back $15 billion worth of stock.

MBIA (MBI) remained in focus after the bond insurer said late Monday that it will stop paying quarterly dividends. Moody's investor services confirmed MBIA's "Aaa" rating Tuesday afternoon, citing the company's recent efforts to shore up its capital base. But Moody's also lowered MBIA's rating outlook to negative from stable. Shares rose more than 4%.

Standard & Poors said Monday that it would maintain its "Aaa" credit rating on bond insurer Ambac Financial Group (ABK).

Home Depot (HD, Fortune 500) reported weaker quarterly earnings that missed forecasts and warned that 2008 will continue to be challenging. Shares slipped in late trading.

Target (TGT, Fortune 500) reported earnings that fell from a year ago and topped estimates on revenue that rose from a year ago and missed estimates. Shares gained.

Macy's (M, Fortune 500) rose after reporting higher quarterly earnings that topped estimates.

Shares of Internet giant Google (GOOG, Fortune 500) fell nearly 5% in afternoon trading following reports that the search engine's "paid clicks," a measure of advertising effectiveness, were flat last year.

Market breadth was positive. On the New York Stock Exchange, winners beat losers by roughly 2 to 1 on volume of 153 billion shares. On the Nasdaq, advancers beat decliners 2 to 1 on volume of 229 billion shares.

Other markets. U.S. light crude oil for April delivery rose $1.65 to $100.88 a barrel on the New York Mercantile Exchange, breaking the previous record of $100.74 set last week. Oil prices surged last week amid speculative buying and concerns that geopolitical discord could cause supply disruptions.

Wheat prices surged past $12 a bushel for the first time on supply concerns.

COMEX gold for April delivery rose $8.40 to $948.90 an ounce.

Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.86% from 3.89% late Monday. Bond prices and yields move in opposite directions.

In currency trading: the dollar, hurt by the deteriorating housing market and weak consumer confidence, fell to a record low versus the euro but gained against the yen.  To top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.