Stocks mostly higher amid more solid earnings

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Companies’ solid earnings reports and upbeat outlooks are sending stocks mostly higher.

Caterpillar Inc. joined other companies Tuesday in issuing an improved 2009 profit forecast, even as it said its second-quarter profit fell 66 percent on weaker sales. The heavy equipment maker is considered a bellwether of the global economy so its guidance was particularly encouraging to investors. Its shares soared more than 12 percent.

Meanwhile, chemical maker DuPont Co. and drug company Merck & Co. reported drops in their quarterly profit, but results still came in ahead of Wall Street’s forecasts.

Companies’ reports have largely exceeded expectations so far this earnings season, fostering a renewed sense of optimism in the market and helping to drive the Dow Jones industrials back into the black for the year.

“This is the most solid evidence that we’ve seen that conditions are improving,” said Jack Ablin, chief investment officer at Harris Private Bank, of the earnings reports.

Other companies expected to report Tuesday include tech giants Yahoo Inc. and Apple Inc., as well as Starbucks Corp.

Investors will also be listening intently to testimony from Federal Reserve Chairman Ben Bernanke, who will give his semiannual report to Congress on Tuesday and Wednesday. The market is anxious for his take on the economy, and are hungry for any clues on how the central bank plans to exit the numerous emergency support programs put in place last fall at the height of the financial crisis.

In morning trading, the Dow rose 44.90, or 0.5 percent, to 8,893.05. The Standard & Poor’s 500 index gained 0.67, or 0.1 percent, to 951.80, while the Nasdaq composite index slipped 7.13, or 0.4 percent, to 1,902.16.

About three stocks rose for every two that fell on the New York Stock Exchange, where volume came to 151.3 million shares.

In other earnings news, UnitedHealth Group Inc. also boosted its full-year earnings outlook, as it reported a second-quarter profit that was more than double what it earned in the year-ago period. And Coca-Cola Co., the world’s largest beverage maker, said its earnings jumped 43 percent even as sales fell, beating analysts’ estimates.

UnitedHealth shares rose 19 to $25.03. Coca-Cola shares slipped 67 cents to $50.36.

Caterpillar shares jumped $4.21 to $40.86. Merck shares gained $1.07, or 3.8 percent, to $29.01, while DuPont rose 30 cents to $28.63.

On Monday, the Dow rose for the sixth straight day, gaining more than 100 points to finish at its highest level since January. The benchmark Standard & Poor’s 500 index, meanwhile, climbed to its highest close since November. Stocks rose on news that CIT Group Inc. had struck a financing deal that would keep the troubled commercial lender out of bankruptcy. More solid earnings from big companies, as well as a positive reading on future economic activity also boosted stocks.

Stocks have been on an upswing since last week, when an upgrade on Goldman Sachs Group Inc. by an influential banking analyst stirred hopes that bank earnings would show an improvement in the health of the financial sector. Since then, major indexes are up about 8 percent, eclipsing a monthlong slide in stocks that had been driven by fears the economy’s recovery would not come as soon as hoped.

Though the bar had been set fairly low for the second quarter, the numbers coming out in companies’ financial reports have sent a clear signal that the recession is taking less of a toll on corporate America than it was just a few months ago.

Bond prices slipped ahead of Bernanke’s testimony. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.63 percent from 3.60 percent late Monday.

In an op-ed piece Tuesday in The Wall Street Journal, Bernanke wrote that the central bank “has many effective tools to tighten monetary policy when the economic outlook requires us to do so.” Yet, considering current economic conditions, such moves won’t likely be warranted for some time, he said.

There have been concerns that the Fed’s programs could spark inflation in the foreseeable future, as the large amounts of money being pumped into the system to get credit flowing again put downward pressure on the dollar. But if the Fed raises rates too soon to offset inflation, investors are worried the economy’s recovery could be stifled, as still-struggling consumers are forced to pay more to borrow money.

The dollar was mixed against other major currencies, while gold prices rose.

Oil prices rose 89 cents to $64.87 a barrel on the New York Mercantile Exchange.

In other trading, the Russell 2000 index of smaller companies slipped 1.99, or 0.4 percent, to 524.97.

Overseas, Japan’s Nikkei stock average jumped 2.7 percent, while Hong Kong’s Hang Seng index finished trading down less than a point. In afternoon trading, Britain’s FTSE 100 gained 1.1 percent, Germany’s DAX index was up 1.7 percent, and France’s CAC-40 rose 1.3 percent.

Copyright 2009 The Associated Press.