Stocks post modest gains

NEW YORK (CNNMoney.com) -- Stocks rose Wednesday, with the Nasdaq ending at its highest level in more than 18 months, on strength in the financial services sector and an upbeat report on wholesale inventories.

The Dow Jones industrial average (INDU) rose 3 points, or less than 0.1%, at 10,567, according to early tallies. The S&P 500 index (SPX) added 5 points, or 0.5%, to 1,145.

The Nasdaq composite (COMP) rose 18 points, or 0.8%, to 2,358. The tech-heavy index closed at its highest level since August 2008. Wednesday marked the 10th anniversary of the Nasdaq's all-time closing high of 5,048.62 at the peak of the dot-com bubble.

Bank stocks advanced on upbeat analyst comments and bullish statements from some executives. Citibank (C, Fortune 500) rose 3.6% after the company priced a $2 billion offering of trust-preferred securities. Bank of America (BAC, Fortune 500) gained nearly 2%.

American International Group (AIG, Fortune 500) soared over 10% as investors cheered the insurance giant's recent asset sales. Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) also gained significant ground.

Technology stocks also posted strong gains. The Sox (SOX), an index of semiconductor shares, gained about 2%.

However, traders said volumes have been declining this week as many market participants move to the sidelines amid a lack of market-moving economic reports.

"There are no buyers to get us over the next hump," said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams. He said the market has stalled, with the S&P 500 struggling to push past its Jan. 19 high of 1,150. "Until that happens, the market is just going to drift."

Shares of energy producers weakened as oil prices pared earlier gains. Oil briefly traded above $83 a barrel after the government reported a smaller-than-expected increase in oil supplies and a dip in gasoline inventory but ended 60 cents higher to settle at $82.09 a barrel. Gold prices fell.

Stocks managed slight gains Tuesday, which was the one-year anniversary of what many consider to be the bottom of the bear market.

Looking ahead, investors will turn Thursday to the government's weekly report on initial claims for unemployment benefits. Economists surveyed by Briefing.com expect claims to have risen last week by 9,000 to 460,000.

The Census Bureau's report on the January trade gap is also due out Thursday.

Economy: The U.S. Commerce Department said wholesale inventories fell 0.2% in January, after a 1% drop the month before, raising expectations that consumer demand is strengthening.

"It's not that inventories are rebuilding, but the declines are waning," said Bruce McCain, chief investment strategist at Key Private Bank. "Sooner or later, businesses will have to begin producing more."

Separately, the Labor Department said fewer states reported increases in unemployment in January.

The Treasury Department said the government suffered a record $220.9 billion budget deficit in February, after a shortfall of $42.6 billion in January. It was the 17th consecutive monthly deficit and was slightly smaller than the $221 billion shortfall economists had forecast.

Company news: Shares of Facet Biotech (FACT) surged 66% after Abbott Labs (ABT, Fortune 500) announced plans to acquire the company for $27 a share. Abbott gained about 0.7%.

Airline stocks rallied on growing expectations that 2010 is shaping into a profitable year for the industry. Shares of UAL (UAUA, Fortune 500), holding company for United Airlines, and Continental Airlines (CAL, Fortune 500) surged about 5%.

World markets: European markets posted solid gains, while Asian shares ended the session flat.

China reported a 46% increase in exports during February. The rise was due in part to stronger demand from consumers in the United States and Europe, analysts said.

The dollar and commodities: The dollar slipped versus the euro but rose against the yen and the pound.

The price of oil rose 60 cents to settle at $82.09 after hitting a high of $83.03 earlier in the session.

Meanwhile, the price of gold fell $14.20 to close at $1,108.10 an ounce.

Bonds: The price of the 10-year note fell, pushing up the yield to 3.71%. The government sold $21 billion worth of reopened 10-year notes Wednesday as part of a $74 billion offering of U.S. debt this week.

Market breadth was positive. On the New York Stock Exchange, winners beat losers by two to one on volume of 961 million shares. On the Nasdaq, advancers topped decliners by just under two to one on volume of 2.2 billion shares.