Stocks struggle higher

NEW YORK (CNNMoney.com) -- Stocks struggled higher Wednesday, finding some momentum at the end of a tough session influenced by a weak Fed 'beige book' report on the economy and Ambac Financial's restructuring plan.

Oil settled at an all-time record above $104 a barrel, while gold spiked closer to the key $1000 an ounce level.

The Dow Jones industrial average (INDU) added 0.3%. The broader Standard & Poor's 500 (SPX) index and the Nasdaq composite (COMP) both added 0.5%.

All three major stock gauges had posted gains through the early afternoon as investors welcomed a better-than-expected reading on the services sector of the economy that helped overshadow weak readings on factory orders and private sector employment.

Early reports that banks negotiating a deal to keep Ambac afloat could finish ironing out the details today had been helping stocks.

But Wall Street struggled after Ambac (ABK) didn't announce a bailout plan and instead said it would raise about $1.5 billion through a common stock offering and restructuring of its business. Trading in Ambac shares had been halted ahead of the news, and its stock plunged 15% in the afternoon.

The Ambac news dragged on a number of financial stocks and initially pulled down the broader market. But stocks crawled back into positive territory by the late afternoon.

Adding to the afternoon malaise was the release of the Federal Reserve's periodic "beige book" reading on the economy, which showed that most of the 12 districts reported a slowdown in economic activity since the beginning of the year.

Although some reports will suggest improvement here and there, the current theme in the economy is pretty obvious, said John Merrill, chief investment officer at Tanglewood Capital Management.

"We've seen a sudden and extreme downturn in economic activity since December," Merrill said. "Not every report shows that, but taken together, it suggests a pronounced slowdown."

"There's not a lot to suggest that we aren't in a recession," he said.

Eye on bond insurers The problems for bond insurers such as Ambac and competitor MBIA (MBI) have worried investors already jittery about the troubled financial market. The companies need to raise enough capital to maintain their top-tier credit ratings, which will enable them to generate new business. Should they lose those ratings, that could spark another wave of multi-billion writedowns in the big banks.

Ratings agencies S&P, Fitch and Moody's all said that they won't change Ambac's financial rating as a result of the Wednesday announcement, but that they would likely improve the company's ratings after more capital is raised.

Economic news The Institute for Supply Management's services sector index rose to 49.3 in February from a prior read of 44.6. Economists surveyed by Briefing.com thought it would increase to 47.5. While the report beat forecasts, it still showed weakness in the sector, with any reading below 50 signaling a slowdown.

Nonetheless, the report was a relief to investors after a recent series of weaker-than-forecast readings on the economy, including the ISM's manufacturing index on Monday.

Other morning economic news was less positive. Private sector employment fell 23,000 in February versus forecasts for a rise of 15,000, according to a monthly report from payroll services firm ADP. Private-sector employment rose a revised 119,000 in the previous month. The report was perhaps a negative indicator ahead of the bigger government employment report due Friday.

Another report showed factory orders tumbled 2.5% in January, as expected, after rising 2% in the previous month.

Fourth-quarter productivity rose a bigger-than-expected 1.9%, a positive. But the report's inflation component, unit labor costs, rose a surprisingly large 2.6%, the government said.

Company news Morgan Stanley upgraded Fannie Mae to "equal weight" from "underweight" saying the tepid outlook for the fourth quarter has been reflected by the stock. Regardless, Fannie Mae (FNM) shares dropped nearly 4%. Fellow government-sponsored mortgage backer Freddie Mac (FRE, Fortune 500) slipped as well.

Big Lots (BIG, Fortune 500) reported a weaker fourth-quarter profit that nonetheless topped forecasts and also projected first-quarter and fiscal year guidance that is above estimates. Shares jumped 22%.

Meanwhile the spike in oil prices gave a boost to Exxon Mobil (XOM, Fortune 500), Schlumberger (SLB) and various other energy stocks, lifting the Amex Oil index by 1.2%.

Trading volume was positive. On the New York Stock Exchange, winners beat losers three to two on volume of 1.62 billion shares. On the Nasdaq, advancers topped decliners by a narrow margin on volume of 2.25 billion shares.

Other markets U.S. light crude oil for April delivery rose $5 to $104.52 a barrel on the New York Mercantile Exchange, an all-time high. During the session, oil hit a trading high of $104.64.

Wednesday's oil market news included the release of the weekly oil inventories report, which showed a drop in crude supplies. Also influencing oil trading: news that OPEC has decided to hold production levels steady, despite record prices.

COMEX gold for April delivery rose $22.20 to settle at $988.50 an ounce.

Treasury prices slumped, raising the yield on the benchmark 10-year note to 3.69% from 3.61% late Tuesday. Bond prices and yields move in opposite directions.

In currency trading, the dollar slipped versus the euro after touching a record low earlier in the session. The dollar gained versus the yen.