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The blue chips closed out the choppy session in the green as traders remained cautiously optimistic that leaders are on track to draft a solution to the debt crisis by the key summit later in the week.
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The Dow Jones Industrial Average climbed 52.3 points, or 0.43%, to 12,150, the S&P 500 gained 1.4 points, or 0.11%, to 1,258 and the Nasdaq Composite dipped 6.2 points, or 0.23%, to 2,650.
Out of the Dow components, General Electric (NYSE:GE) and Pfizer (NYSE:PFE) posted the best performance, while Caterpillar (NYSE:CAT) and Alcoaa (NYSE:AA) lagged behind.
There wasn't a particularly strong sense of direction on the day. Indeed, the Nasdaq ended in the red, and volume on the New York Stock Exchange was essentially evenly split between advancing and declining shares. U.S. Treasury yields pushed higher as traders shed the asset. The benchmark 10-year note yields 2.080% from 2.062%.
With the economic calendar quite light this week, market participants continue intensely eyeing the situation in Europe. European Union policymakers are rushing to come up with a solution for the two-year-old debt crisis ahead of a crucial summit on Friday.
A report from the Financial Times said European officials may allow the 440 billion euro rescue fund remain intact when a larger half-a-trillion euro facility comes online in the middle of next year. This would effectively double the the bloc's firepower in fighting the crisis, the report said. Officials are also looking to garner more support from the International Monetary Fund, according to the paper.
The development comes a day after Standard & Poor's put nearly the entire eurozone on warning for a downgrade as "systemic stresses in the euro zone have risen in recent weeks," putting additional pressure on already struggling countries, like Italy, the ratings company said in a release shortly after the close of trading on Monday. Among the countries that could receive a downgrade are Germany, France and four other countries that presently retain top-notch ratings.
The German-Franco warning is particularly significant because those countries represent the biggest economies in Europe, and backers of the bloc's bailout fund. Indeed, S&P cautioned Tuesday that the fund may lose its triple-A rating if the underlying countries are cut.
However, the markets' reaction was "muted" on Tuesday because ratings companies have "lost their clout" among traders, James Hughes, a senior market analyst with Alpari said in an interview with FOX Business. The companies have come under pressure for what some analysts see as overly optimistic ratings on mortgage-backed securities during the financial crisis, and similarly rosy projections for European sovereign debt.
European blue chips fell 0.34%, while the euro fell 0.09% to $1.3409. Yields on Italian debt are up slightly after the move by S&P, but still off the painful 7% mark. The country's 10-year bond yields 6.4% presently, and investors demand a 4.16 percentage-point premium to hold its debt over safe-haven German bunds.
On the corporate front, AutoZone (NYSE:AZO) unveiled fiscal first-quarter profits of $4.68 a share, zipping past estimates of $4.44. Sales jumped 7% to $1.92 billion, also topping estimates of $1.89 billion.
The economic calendar is light all week, with no major reports on tap for Tuesday.
Energy markets were up. The benchmark crude oil contract traded in New York gained 29 cents, or 0.19%, to $101.28 a barrel. Wholesale RBOB gasoline climbed 3 cents to $2.65 a gallon.
In metals, gold fell $2.70, or 0.16%, to $1,732 a troy ounce.
European blue chips fell 0.54%, the English FTSE 100 rose 0.01% to 5,569 and the German DAX dipped 1.3% to 6,029.
In Asia, the Japanese Nikkei 225 slid 1.4% to 8,575 and the Chinese Hang Seng sunk 1.2% to 18,942.