Stocks abandon rally

By Alexandra Twin, senior writer


NEW YORK (CNNMoney.com) -- Stocks gave up gains Thursday, ending little changed, as a late-session bounce in the dollar sapped the strength out of a rally that had pushed the Dow, S&P 500 and Nasdaq near new 18-month highs.

The Dow Jones industrial average (INDU) added 5 points, or less than 0.1%. Earlier it had risen as much as 119 points, to within 46 points of 11,000, before giving back most of those gains. The S&P 500 index (SPX) lost 2 points, or 0.2%. The Nasdaq composite (COMP) was little changed.

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The market rallied through the early afternoon after Best Buy and Qualcomm issued upbeat profit forecasts and Federal Reserve Chairman Ben Bernanke said interest rates can stay low for a while.

But the advance crumbled in the last half hour as the dollar firmed up and commodity prices and stocks cut gains. Treasury prices tumbled, boosting the corresponding yields after the government's auction of $32 billion in seven-year notes drew tepid demand.

Stocks fell Wednesday after Fitch's downgrade of Portugal's debt increased worries about euro zone debt issues, sending the dollar higher.

However, the trend has been largely to the upside over the last few weeks, with the major indexes rising in five of the last six weeks, pushing the Dow industrials closer to 11,000, a key psychological level.

Investors are also still reacting well to the end of the uncertainty around the health care bill, which President Obama signed into law Tuesday, said Kelli Hill, portfolio manager at Ashfield Capital Partners.

"The uncertainty about the health care bill is gone and there are plenty of indications that the economic recovery is picking up," she said. "Best Buy's report shows corporate earnings are going to keep improving, and the run-up in the technology and transportation sectors is an economic play."

A broad stock advance petered out by the close, with technology and retail shares holding on to gains and energy, materials, metal and mining stocks all retreating.

Market breadth turned mixed after having been positive through the session. Trading volume was moderate. On the New York Stock Exchange, winners topped losers four to three on volume of 1.156 billion shares. On the Nasdaq, decliners topped advancers eight to five on volume of 2.60 billion shares.

After the close, Oracle (ORCL, Fortune 500) reported weaker earnings that beat forecasts and higher revenue that also topped expectations.

Best Buy: The electronics retailer reported higher quarterly sales and earnings that topped estimates thanks to stronger sales of high-ticket items like notebook computers, mobile phones and flat-panel TVs.

The company also lifted its full-year earnings forecast due to increased demand for electronics in an improving economy.

Best Buy (BBY, Fortune 500) shares rose 3.6%.

Wireless chipmaker Qualcomm (QCOM, Fortune 500) boosted its fiscal second-quarter earnings and sales forecast, due to a pickup in licensing revenue and chipset demand. Shares rose 5%.

Bernanke: The Federal Reserve chairman, speaking before a House committee Thursday said that record-low rates are still needed to keep the economy chugging along.

He said that a still germinating economic recovery, a persistently high unemployment rate and little in the way of inflationary pressure mean the Fed has some breathing room when it comes to interest rates. He said higher rates will be needed at some point in the future, but not in the near term.

Bernanke was speaking before the House Financial Services Committee as part of a hearing on how the Fed plans to withdraw the emergency funding programs put in place at the height of the financial crisis.

His comments essentially echoed those in the statement accompanying last week's Fed decision, in which the central bank held interest rates steady at historic lows near zero percent.

Greece: Worries about a Greek default were further cooled Thursday following a series of developments as a European Union (EU) summit was about to get underway in Brussels.

Reports say EU leaders want to put together a joint loan package for Greece of €22 billion to €23 billion that would be funded by euro zone nations and the International Monetary Fund, should Greece run out of borrowing options.

Earlier, Greece and Spain called for the EU to create a bailout fund to provide cheap loans to struggling member nations. Meanwhile, the European Central Bank extended looser funding rules.

Worries about a euro zone debt crisis were exacerbated Wednesday after ratings agency Fitch lowered Portugal's debt rating.

Like Greece, Portugal is one of the PIIGS, the five euro zone nations with serious debt problems. Ireland, Italy and Spain are the other three.

Dubai: Dubai's government said it will inject $9.5 billion in funding into Dubai World and its property development arm Nakheel as part of a long-in-the-works restructuring plan. Even with the infusion, Dubai World will still owe its creditors more than $14 billion.

Global markets were rocked in November when the city-state, the most populous of the seven United Arab Emirates, requested a freeze on $26 billion in debt payments, raising worries that it would default.

The $9.5 billion infusion was seen a step in the right direction.

VIX: The Volatility (VIX) index, the market's so-called fear gauge, turned higher in the late afternoon as investors backed out of stocks. The VIX and the market typically move in opposing directions. On Wednesday, the VIX fell to a two-and-a-half-year low.

Labor market: The number of Americans filing new claims for unemployment fell last week to the lowest level in six weeks. Claims fell to 442,000 last week from a revised 456,000 the previous week. Economists surveyed by Briefing.com thought claims would fall to 450,000.

Continuing claims, a measure of Americans who have been receiving benefits for a year or more, fell to 4,648,000 from 4,725,500 in the previous week.

The dollar and commodities: The dollar fell versus the euro and gained against the yen.

U.S. light crude oil for May delivery slipped 8 cents to settle at $80.45 a barrel on the New York Mercantile Exchange.

COMEX gold for May delivery rose $4.10 to settle at $1,092.90 per ounce.

Bonds: Treasury prices fell, raising the yield on the 10-year note to 3.93% from 3.83% late Wednesday after a tepid response to an auction of seven-year notes. Treasury prices and yields move in opposite directions.

A $32 billion auction of $7 year notes drew moderate demand, following a mild response to Wednesday's auction of $42 billion in five-year notes.

World markets: In overseas trading, European markets gained. London's FTSE rose 0.9%, France's CAC 40 rose 1.3% and Germany's DAX added 1.6%. Asian markets ended mixed, with Hong Kong's Hang Seng index down 1.1% and Japan's Nikkei index up 0.1%. To top of page

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Index Last Change % Change
Dow 17,131.97 100.83 0.59%
Nasdaq 4,552.76 33.86 0.75%
S&P 500 1,998.98 14.85 0.75%
Treasuries 2.59 -0.00 -0.08%
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Company Price Change % Change
Apple Inc 100.86 -0.77 -0.76%
Bank of America Corp... 16.71 -0.03 -0.18%
Yahoo! Inc 42.71 0.16 0.38%
Alcoa Inc 16.16 -0.23 -1.40%
Facebook Inc 76.08 1.50 2.01%
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