U.S. Stocks Mixed Ahead Of Fed; Oil Tops $70 A Barrel

NEW YORK (MarketWatch) -- U.S. stocks were mixed on Thursday, with energy shares providing a lift as crude oil topped $70 a barrel, but with the market's advance capped by caution ahead of the Federal Reserve's decision on interest rates.

"Ahead of the 2:15 [p.m. Eastern] Fed statement, I don't expect the market to move too far in either direction," said Elliot Spar, market strategist at Ryan, Beck & Co.

The Dow Jones Industrial Average was down 7 points at 13,420, as 19 of its 30 components traded lower.

Among blue chips, General Motors Corp. gained 2.2% after news that it would sell its Allison Transmission business for $5.6 billion to Carlyle Group and Onex Corp. And Intel Corp. rose 0.8% after Lehman Brothers upgraded the stock, predicting that its second-quarter sales will reach the top end of forecasts.

The S&P 500 rose 0.2 points to 1,506, while the Nasdaq Composite advanced 5.4 points to 2,610. Intel was amongst the most heavily traded stocks on Nasdaq.

Trading volumes showed 277 million shares exchanging hands on the New York Stock Exchange and 387 million trading on the Nasdaq stock exchange. Advancing issues topped decliners by 19 to 10 on the NYSE, and by 14 to 11 on Nasdaq.

By sector, oil , gold , telecoms and airlines led the gains, while broker/dealers , oil services and semiconductors fell.

Airlines advanced even as crude oil rallied after JP Morgan upgraded six airline stocks, including UAL Corp. , Alaska Air , American Airlines and Continental Airlines .

Commodities were trending higher, with crude oil continuing to rally after data on Wednesday showed a decline in gasoline inventories. The August crude futures contract recently gained $1.25, or 1.8%, at 70.22 a barrel.

Gold also rose, recently gaining $4.30 to $646.20 an ounce.

Stocks rallied Wednesday, reversing early weakness, as investors set aside recent jitters about the subprime mortgage market and hedge fund woes to focus on rebuilding their portfolios ahead of the end of the second quarter on Friday.

Fed in play

On Thursday the market's attention turned to the Fed decision, due at 2.15 p.m. Eastern.

"The [Fed's] statement is likely to be a repeat of the previous one, with inflation still likely to be the main concern of the fed," said Peter Cardillo, chief U.S. economist at Avalon Partners.

Earlier, the final revision to first-quarter gross domestic product showed a slight upward revision in growth that still fell short of economists expectations. A key gauge of inflation in the GDP report was also revised higher.

First-quarter growth in gross domestic product was revised to 0.7% from 0.6% previously, but the pace was still the slowest in four years. Meanwhile, core consumer prices, which are closely monitored by the Fed, rose at a 2.4% annualized pace in the quarter, revised up from the 2.2% rate previously projected.

Treasury prices gave up their gains, pushing yields lower, after the latest GDP revision hinted that inflation is stronger than was believed. Inflation puts pressure on the Fed to keep rates higher and eats into the value of bonds.

The 10-year Treasury note last was down 2/32 at 95-14/32 with a yield of 5.095%.

The dollar, meanwhile, fell back against major rivals.

Stocks in motion

Monsanto Co. reported a sharp increase in third-quarter earnings to $570 million or $1.03 a share from $334 million, or 60 cents a share, citing a strong agricultural season. On an adjusted basis, earnings beat expectations. The stock rose 1% to $66.62 before the opening.

Credit card giant Capital One Financial Corp. will cut about 2,000 jobs as part of its efforts to reduce expenses by $700 million in the next two years.

Bed Bath & Beyond late Wednesday lowered its earnings and sales forecast and said the overall retail environment is "challenging."

Novellus Systems Inc. sad it expects second-quarter revenue and earnings at the low end of the guidance it has previously provided, as it anticipates weakening demand in the semiconductor equipment industry. It's cutting executive salaries for the rest of the year and planning shutdowns.

By Nick Godt