Stocks fight back
Wall Street manages gains after the Dow and Nasdaq briefly hit bear market territory. GM's sales loss is not as steep as expected. Oil closes at record high.
NEW YORK (CNNMoney.com) -- Stocks struggled higher Tuesday - with the Dow and Nasdaq pushing off bear market levels - after GM reported a June sales loss that was steep, but not as steep as had been expected.
A bounce in some of the recently battered financial shares also helped the market recover.
The Dow Jones industrial average (INDU) rose 0.3%.The broader Standard & Poor's 500 (SPX) index gained 0.4% and the tech-heavy Nasdaq composite (COMP) added 0.5%.
Stocks were volatile throughout the session, turning positive in the late morning after a report showed a surprise pick up in manufacturing activity and then sliding again in the early afternoon as the bank sector slumped.
Wall Street managed to recover again in the late afternoon after GM (GM, Fortune 500) reported that U.S. sales fell 18% in June versus a year ago. While that continued the string of big losses for the auto sector, the figure was shy of the 25% decline analysts had been looking for.
"GM was a surprise, with people expecting even more horrendous numbers," said John Wilson, chief technical strategist at Morgan Keegan.
Among other automakers, Ford Motor (F, Fortune 500) reported June U.S. sales slipped 28.1%, reflecting the impact of rocketing oil prices and a lack of investor confidence (Full story).
The Dow and the Nasdaq both briefly fell to levels that meet the technical definition of a bear market before bouncing back a little. A bear market is defined as a drop of at least 20% off the recent highs. The Nasdaq closed 24% off the October highs in March before staging a temporary recovery in May.
With oil prices above $140 a barrel and the financial sector outlook still bleak, it's hard to picture the market bouncing back much this summer, Wilson said
"We're looking at some terrible investor sentiment right now technically and we could see some sort of reversal, but I also don't see unbridled fear out there," he said. Typically, the fear factor would need to be worse in order for the market to be set up for a big bounce back, he said.
Thursday's market could be critical in determining whether stocks have put in a bottom this week or whether the "bear market" is going to take a firmer hold, said Donald Selkin, chief market strategist at National Securities.
Thursday's two key events are the latest interest rate decision from the European Central Bank and the June employment report. Current expectations are for the ECB to raise rates and for employers to have cut 60,000 jobs from their payrolls. Should that happen, stocks will most likely tumble, Selkin said.
But if the ECB were to hold steady, that would help the dollar, which would in turn bring down oil prices - good for equities. Should the employment report meet or slightly beat estimates, that would also be a positive.
"You can make a case for Thursday that it will another disaster to the downside," he said. "But it's also conceivable that we get bullish news and that today was the bottom."
Ahead of that, Wednesday brings the June reading private sector employment report from payroll services firm ADP. The ADP report is expected to show that employers cut 20,000 jobs from their payrolls in the month after adding 40,000 in the previous month.
Wednesday also brings the May factory orders report and the weekly crude oil inventories report.
Financials and other movers: Lehman Brothers (LEH, Fortune 500) shares rose as investors mulled talk that the bank may need to put itself up for sale and at a discount, much like Bear Stearns did.
Such concerns sent the stock plunging Monday, but Lehman bounced Tuesday after Morgan Stanley started coverage of the stock with an "outperform" rating.
American Express (AXP, Fortune 500) gained after UBS upgraded it to "neutral" from "sell" as part of a broader upgrade of the credit card sector, saying that the stock is now fairly valued relative to the difficult outlook.
CIT Group (CIT, Fortune 500) rallied on news it is selling its home lending business to Lone Star Funds for $1.5 billion and the assumption of $4.4 billion in debt. CIT is also selling its mobile home mortgage business for $300 million to Vanderbilt Mortgage and Finance. (Full story).
UBS (UBS) shares slipped after the company said it will reshuffle its board following big subprime mortgage losses.
On the downside, companies that derive a large portion of their profits from fuel suffered as oil prices rose. Airlines led the list of declining transportation stocks, dragging down the Dow Jones Transportation average by 1.8%.
Market breadth was negative. On the New York Stock Exchange, losers topped winners nine to seven on volume of 1.64 billion shares. On the Nasdaq, decliners beat advancers four to three on volume of 2.67 billion shares.
Oil and gas prices jump: U.S. light crude for August delivery rose 97 cents to settle at $140.97 a barrel on the New York Mercantile Exchange, an all-time closing high. The front-month contract moved close to the all-time trading record of $143.67 per barrel hit Monday before trimming gains. (Full story).
The national average price for a gallon of regular unleaded gas rose to a record $4.087 from a record $4.086 the previous day, according to AAA. (Full story).
Other markets: In currency trading, the dollar fell versus the euro and the yen.
In the bond market, Treasury prices fell, raising the yield on the benchmark 10-year note to 4.00% from 3.97% late Monday. Bond prices and yields move in opposite directions.
COMEX gold for August delivery rose $16.20 to settle at $944.50 an ounce.
Manufacturing index improves: The Institute for Supply Management said its manufacturing index rose to 50.2 in June beating forecasts for a slide to 48.6, according to a consensus of economists surveyed by Briefing.com. A reading above 50 implies expansion, while one below implies a contraction in the sector.
However, the report also showed a big jump in the prices manufacturers pay for raw materials, reflecting the run up in oil prices and other inflationary pressures.
A separate report showed a decline in May construction spending, although it was not as big a decline as had been expected.
The benign news helped temper some worries about the economy, but any relief was short lived amid the ongoing threat to growth from higher fuel prices and the credit market fallout.
Worst June since the 1930s: Wall Street struggled Monday at the end of the worst June for the Dow and S&P 500 since the Great Depression, ending a tough first half of the year on a dour note. In the first half, the Dow lost 14.4%, the S&P 500 fell 12.8% and the Nasdaq fell 13.5%.
The Dow's plunge of 10.2% in June was the worst monthly performance since September 2002 when it fell 12.4%, and the worst June since 1930, when it sank 17.7%. The S&P 500's 8.6% decline was the worst month since September 2002, when it fell 11% and the worst June since 1930, when it fell 16.5%.
The Nasdaq fell 9.1% in June - the worst monthly performance since this past January - when it lost 9.9%, and the worst June since 2002, when it shed 9.4%. 
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