The Dow industrials gained 30 points to close at 12,803, a new record closing level. The blue-chip average earlier hit a fresh record intraday high of 12,838.
The Dow wavered in and out of negative territory during the morning session. While bulls came back in the afternoon, they piled into selected blue-chips, as only 11 of its 30 components advanced.
"More than anything, this morning's pull back was due to some consolidation after three consecutive days of gains," said Michael Malone, trading analyst at Cowen & Co.
J.P. Morgan Chase & Co. was among the biggest gainers on the Dow, rising 3.8% after its earnings beat Wall Street expectations by a wide margin. The firm also increased its dividend by 12% and launched a $10 billion stock repurchase program.
The results also helped boost the broad financial sector, which had been lagging recently amid concerns over the meltdown in the subprime mortgage market. On the Dow, Citigroup Inc. and American Express Co. also advanced.
Boeing Co. also helped lead the Dow's advance, rising 3.8% following a report that the company has received an order for 30 of its 787 Dreamliners.
Since plunging in late February, the market has rallied back strongly through the start of first-quarter earnings season. But the advance is becoming "tougher", said Marc Pado, chief U.S. market strategist at Cantor Fitzgerald.
"A few Dow component earnings may help the index, but the broader market is starting to show signs that it jumped out ahead of this earnings season, perhaps a bit too soon," he said.
IBM was the biggest drag on the blue-chip average, losing 2.4%. While IBM earnings were broadly in line with analysts' expectations, Goldman Sachs downgraded the stock as it projected slowing spending on technology.
Intel Corp. also helped support the Dow, rising 1.8% after the chip maker's earnings topped expectations. And Caterpillar , yet another Dow component, gained 3% after Wachovia upgraded the company, predicting that its earnings will accelerate in 2008.
The S&P 500 index rose 1 point to 1,472, while the Nasdaq Composite lost 6.4 points to 2,510.
Among key tech shares, Yahoo Inc. caved in over 11%. Late Tuesday the internet portal reported first-quarter earnings of $142 million, or 10 cents a share, below the 11 cents that analysts, on average, had been expecting.
Trading volumes showed 1.6 billion shares exchanging hands on the New York Stock Exchange and 2.1 billion shares trading on the Nasdaq stock market. Declining issues outpaced gainers by 9 to 7 on the NYSE and by 17 to 11 on the Nasdaq.
By sector, broker/dealers , banks , and semiconductors led the gains, while Internet , natural gas and oil services fell back.
The financial sector has been a laggard in the market until recently amid concerns about contagion from a meltdown in the subprime mortgage market. But with investment firms like JP Morgan still posting strong profits, "the subprime issue is receding" into the background, said Cowen's Malone.
Still, while the market may have put the issue on the backburner, foreclosure activity was reported to have increased another 7% from February to March, and foreclosures were up 47% compared with March 2006, according to Irvine, Calif.-based RealtyTrac.
And Washington Mutual Inc. , buffeted by a slowing mortgage market, posted a 20% drop in net income and a $113 million loss for the company's home-loan group partly due to its exposure to the subprime-mortgage market.
The stock, however, gained 5% as WaMu's earnings topped expectatons.
"The market has rallied on optimism brought about by some of the largest companies who have reported earnings that have beaten their lowered earnings estimates," said Robert Pavlik, chief investment officer at Oaktree Asset Management, in a note.
But once earnings season ends, he said, "the market will have to face the reality that we're in a softening economy, with stubborn inflation, weaker manufacturing, a weaker housing market, slowing business spending, a weak dollar and rising commodity prices."
The dollar continued its downward slide against major currencies Wednesday, hitting a 26-year low against the British pound, and approaching an all-time low against the euro.
Crude-oil futures recovered from early weakness and gained 3 cents to close at $63.13 a barrel.
Gold futures rose amid dollar weakness, with the June contract rising 80 cents to close at $693.30 an ounce.
Treasury prices rose, sending yields lower, amid continued optimism over benign inflation data released during the previous session. The benchmark 10-year Treasury bond gained 7/32 at 99 25/32, while its yield which moves inversely, fell to 4.649%.
Stocks in motion
Shares of Motorola Inc. rose 1.5%. The company reported a quarterly loss and a decline in revenue. However, its earnings excluding special items beat expectations, as did its revenue.
Abbott Laboratories dropped 1.6%. The company reported that its first-quarter earnings fell 19% to $697.5 million, or 45 cents a share, from $864.9 million, or 56 cents, a year earlier. Excluding certain items, earnings fell to 55 cents a share from 57 cents a share. Sales rose to $5.29 billion. Analysts polled by Thomson Financial expected, on average, first-quarter earnings of 52 cents a share on revenue of $5.26 billion.
By Nick Godt