Stocks pare gains in final hour

NEW YORK (CNNMoney.com) -- U.S. stocks eased off earlier gains but finished higher Tuesday, as investors found little reason to jump into the fray after the Fed kept rates steady and left its bond-buying plan alone.

The Dow Jones industrial average (INDU) closed up 48 points, or 0.4%, to finish at 11,476.54, the highest closing price since September 2008. Earlier, The blue-chip index gained 86 points and hit a fresh two-year intraday high of 11,514.08.

About two-thirds of the 30 Dow issues advanced, with AT&T (T, Fortune 500), Kraft Foods (KFT, Fortune 500), Verizon (VZ, Fortune 500), Johnson & Johnson (JNJ, Fortune 500) and Microsoft (MSFT, Fortune 500) leading the way.

The S&P 500 (SPX) and the Nasdaq briefly drifted into negative territory during the last hour of trade but also ended with gains. The S&P 500 rose 1 point, or 0.1%, and the tech-heavy Nasdaq (COMP) added 3 points, or 0.1%.

Stocks had rallied out of the gate Tuesday morning, following a better-than-expected retail sales report from the U.S. Commerce Department, and held onto gains for most of the afternoon.

"Today's retail sales are a good sign that the consumer is coming back," said Matt King, chief investment officer at Bell Investment Advisors. The market lost traction as stocks headed into the close but "investor sentiment is still positive," King said.

All three major indexes have gained about 5% this month, and are up more than 6% for the quarter. Stocks are on track for double-digit gains for the year.

"Stocks have come a long way in recent months, and investors need a moment to catch their breaths," said Steven Goldman, market strategist at Weeden & Co. "We're pretty content with where stocks are for the year, though that's not to say they can't exceed the current levels."

Investors remain somewhat cautious as they wait for Congress to extend the Bush-era tax cuts, said Paul Radeke, vice president at KDV Wealth Management.

Radeke said his firm's investors have "a great fear of inaction," but are counting on Congress to act on the proposed extension.

The compromise between President Obama and Republicans in Congress could face a final Senate vote Tuesday, after passing a key test Monday.

An extension of the Bush-era tax cuts would keep cash in the wallets of Americans. Since consumers are responsible for the lion's share of spending in the U.S., confident consumers willing to spend is key to an economic recovery.

On Monday, stocks finished a lackluster session mixed as investors mulled a flurry of corporate deals; and as the tax deal cleared a key Senate procedural hurdle.

Economy: As expected, the Federal Reserve held interest rates near 0%, where they have been since the financial crisis took hold in 2008.

The central bank also maintained its rhetoric on the economy, saying that although it is recovering, the pace is not fast enough to combat the unemployment rate.

The Fed said it is moving ahead with its plan to pump $600 billion into the economy, known as quantitative easing or QE2, and did make any changes to the program.

"The Fed is repeating its message and reinforcing its commitment to QE2," said Jeff Kleintop, chief market strategist at LPL Financial. "The Fed's stimulus is a positive for the stock market."

Government reports on retail sales and inflation at the wholesale level came out before the market opened.

Retail sales were better than expected, with strength in gasoline prices and clothing sales. U.S. retail sales rose 0.8% in November, the Commerce Department said, which was better than the 0.5% increase economists were expecting. Excluding the automotive sector, sales jumped 1.2% -- more than the 0.6% increase anticipated.

The producer price index increased 0.8% in November -- higher than the 0.5% gain expected. Core PPI, which excludes food and energy prices, rose 0.3% -- a larger increase than the 0.2% expected.

A report from the Commerce Department showed that business inventories grew 0.7% in October, following a 0.9% uptick the prior month. Economists were expecting inventories to rise 1.1%.

Companies: Best Buy (BBY, Fortune 500) shares slid 15% in early trading, after the home electronics retailer lowered its fiscal year outlook and posted a 3.3% decline in quarterly same-store sales.

Shares of General Electric (GE, Fortune 500) edged higher after the company released presentation slides ahead of its annual investors meeting that reiterated the company's upbeat outlook. GE said it "will deli ever solid earnings growth in 2010, 2011 and beyond," as its performance continues to strengthen.

World markets: European stocks ended the session mixed. Britain's FTSE 100 rose 0.5%, while Germany's DAX slid less than 0.1%. The CAC 40 in France gained 0.3%.

Asian markets ended higher. The Shanghai Composite added 0.1%, the Hang Seng in Hong Kong gained 0.5%, and Japan's Nikkei rose 0.2%.

Currencies and commodities: The dollar gained ground against the euro, the Japanese yen and the British pound.

Oil for January delivery slipped 33 cents to settle at $88.28 a barrel.

Gold futures for February delivery rose $6.30 to $1,404.30 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury edged down slightly, pushing the yield up to 3.44%.