Stocks gain as oil falls
Wall Street trims gains, but remains upbeat as crude prices retreat.
NEW YORK (CNNMoney.com) -- Stocks cut their gains Monday afternoon, but the broader market remained in positive territory as lower oil prices reassured investors for the second session in a row.
The Dow Jones industrial average (INDU) gained 0.4%. The broader Standard & Poor's 500 (SPX) index gained 0.7% and the Nasdaq composite (COMP) added 1%.
Small caps gained too, with the Russell 2000 index up 2.3%.
Wall Street seemed to follow the path of the oil market throughout the session. Stocks slipped early as oil prices rallied on worries about supply disruptions in energy-rich Central Asia, amid the military conflict between Russia and Georgia.
But crude resumed last week's slide after Iran called for renewed nuclear talks and China reported a decline in crude imports, countering threats to supplies in Eastern Europe. That turnaround helped stocks rebound. Oil prices then erased half of their losses late in the session, and the stock market followed suit.
Any advance Monday was "oil-related," said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams. He said that despite the events in Russia and Georgia, investors believe that prices are generally heading lower, and therefore stocks are recovering.
Due to a sense that demand is decreasing, "all these supply disruptions are being ignored in the great outflow of money out of commodities," said David Levy, portfolio manager at Kenjol Capital Management.
He said the market is experiencing some sector rotation, with money coming out of oil and other commodities and going into healthcare and technology. Investors have even been dipping their toes into financials a bit lately, although he says that the sector remains unstable.
"Basically, what the market loved going into the quarter it now hates and vice versa," he said.
However, Rovelli noted that because it's a summer Monday, big stock moves can be deceptive. He said any advance will be tested later this week, when the retail sales and consumer inflation reports are released.
The stock advance also seemed to lose momentum after the Fed released a study that showed 75% of banks have tightened lending standards on home mortgages and other loans. (Full story).
Stocks jumped Friday, with the Dow industrials gaining over 300 points, as oil prices lost almost $5 a barrel to trade at three-month lows and the dollar rallied against other major currencies.
Stocks were also up sharply for the week, with the Dow gaining over 3.5%, the S&P 500 gaining almost 3% and the Nasdaq gaining 4.5%.
Tuesday brings readings on the June trade balance in the morning and the July Treasury budget in the afternoon. Bank UBS (UBS) also reports results Tuesday.
Fuel prices: U.S. light crude oil for September delivery lost 75 cents to settle at $114.45 a barrel on the New York Mercantile Exchange.
Retail gas prices dropped overnight, extending a downward trend for a 25th day, according to a survey of gas station credit-card activity. (Full story.)
Stock movers: Tech led the way, with Amazon.com (AMZN, Fortune 500), Apple (AAPL, Fortune 500) and Google (GOOG, Fortune 500) among the big gainers.
Amazon.com (AMZN, Fortune 500) gained 9.4% after Citi Investment Research said it will probably sell twice as many Kindle electronic book readers this year as Citi initially thought it would.
Citi upgraded Qwest Communications (Q, Fortune 500) to "buy" from "hold," saying that the company is due for a restructuring that should improve returns to shareholders. Qwest shares gained 6% and topped the New York Stock Exchange's most actives list.
Retail stocks jumped on bets that lower fuel costs will boost consumer spending. The S&P Retail (RLX) index jumped 4.8%.
American Express (AXP, Fortune 500), AT&T (T, Fortune 500), Citigroup (C, Fortune 500), Home Depot (HD, Fortune 500) and General Motors (GM, Fortune 500) were the Dow's biggest gainers.
Verizon Communications (VZ, Fortune 500) said it reached an agreement Sunday with two unions that represent 65,000 workers, averting a potential strike. The three-year contract gives workers pay increases and changes in retirement benefits. Shares gained 2% (Full story).
Waste Management (RSG) boosted its unsolicited bid for rival Republic Services (RSG) to $37 per share, or $6.73 billion, from the original offer of $34 per share. Republic rejected that offer last month.
Market breadth was positive. On the New York Stock Exchange, winners beat losers three to two on volume of 1.26 billion shares. On the Nasdaq, advancers topped decliners by more than two to one on volume of 2.32 billion shares.
Other markets: In currency trading, the greenback rose versus the euro and slipped versus the yen, recovering from bigger morning losses.
COMEX gold for October delivery fell $36.40 to settle at $824.30 an ounce.
In the bond market, Treasury prices slumped, raising the yield on the benchmark 10-year note to 4% from 3.93% late Friday.
In global trading, European markets ended higher, while Asian markets finished mixed. China's benchmark Shanghai Composite slumped to a 19-month low on economic worries. 
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