U.S. Stocks Retain Edge As Fed Chairman Speaks

NEW YORK (MarketWatch) -- Stocks climbed Tuesday, with the Dow industrials bolstered by solid August sales by fast-food goliath McDonald's Corp. and word from General Motors Corp., the largest U.S. automaker, that it is enticing buyers with fewer incentives.

Investors also found comfort in the belief the Federal Reserve would likely cut interest rates at next week's policy-setting meeting by the central bank, with the view little altered by a speech by Ben Bernanke in Germany, in which the Fed chairman offered few, if any, clues.

The Dow Jones Industrial Average was up 132 points at 13,261.1, with 26 of its 30 components on the rise, led by GM , up 3.7% after it said it was spending less on incentives for newly released crossover vehicles, and McDonald's , up 4.4% on a strong rise in August sales.

"They are on an incredible roll," Dennis Lombardi, a food industry consultant at WD Partners, said of McDonald's sales figures.

The S&P 500 was up 11.63 points to 1,463.33, and the Nasdaq Composite was ahead 27.29 points to 2,586.40.

Volume at the New York Stock Exchange came to 560 million shares, with advancing stocks ahead of decliners nearly 2 to 1. At the Nasdaq, 912 million shares were exchanged, and advancing issues topped declining stocks 8 to 5.

"If the NYSE advance/decline fades to less than 3 to 2 positive, the sellers will get the upper hand this afternoon," said Elliot Spar, an option/market strategist at Stifel Nicolaus & Co.

Chain gang

The retail sector gained along with the broader market, with shares of Dow member Wal-Mart Stores Inc. almost 1% higher after it revised its second-quarter profit lower by $153 million late Monday.

The International Council of Shopping Centers and UBS Securities said chain-store sales for the week ended Sept. 8 rose 2.9%. .

"The Fed is apparently paying more attention than usual to chain-store sales, both the weekly and monthly figures, because there really is no other basis to say that spending is holding up," said Tony Crescenzi, bond strategist with Miller Tabak & Co. LLC.

"To the extent the Fed believes consumer spending is holding up and will continue to hold up, it is unlikely that the Fed would have to cut interest rates as much as is now priced in," said Crescenzi.

Exports up; crude down

Early data had the Commerce Department reporting the value of U.S. exports of goods and services increased 2.7% in July, the fastest seasonally adjusted growth in more than three years. .

"For the third month in a row, both imports and exports of goods rose, signaling continued solid activity both abroad and in the U.S.," wrote Stephen Stanley, chief economist at RBS Greenwich Capital, in a note.

Crude-oil futures gained 4 cents to $77.53 a barrel, after climbing to $78.32, with the Organization of Petroleum Exporting Countries reportedly agreeing to raise its production by 500,000 barrels a day, effective Nov. 1.

Fed moves

The market scrutinized Bernanke's talk to Germany's central bank, the Bundesbank, for any clues on coming Fed rate actions, with analysts looking for the Fed to cut its target rate for overnight bank lending by at least 25 basis points.

"I wouldn't be selling, after transaction costs you may well be out of the money, particularly if Bernanke does give us a 50 basis-point cut between now and Sept. 18," said Tom Elliott, head of global strategy for J.P. Morgan Asset Management in London.

"But for new money, I would be inclined to hold it in liquidity instruments like cash. I think the market is so volatile, and there's so much risk out there," Elliot said.

Bernanke's speech followed remarks Monday by four Fed officials, with all saying the U.S. faces increased risk of an economic slowdown, but none saying the slowdown had materialized. .

Active issues

Shares of ImClone Systems Inc. jumped 23%, and Bristol-Myrs Squibb Co. climbed 0.7% on promising research on their Erbitux drug in extending survival rates for patients with a form of lung cancer. .

Countrywide Financial Corp. fell 3.3% after a New York Post report that the nation's largest mortgage lender had hired Goldman Sachs to line up another multibillion-dollar investment in the company, just weeks after Bank of America made a $2 billion investment.

PepsiCo Inc. shares gained 1.9% after the company's upgrade to buy from hold at Goldman Sachs, which also upgraded the beverage sector to attractive from neutral, citing improving fundamentals and reasonable valuation.

Shares of Take-Two Interactive Software gained 5.9% after the video game publisher narrowed its quarterly loss.

After the close, Texas Instruments is due to give a mid-quarter update.

Other markets

The dollar fell slightly against key currencies, with the greenback off 0.2% against the euro, at $1.3826.

On the New York Mercantile Exchange, gold futures edged up, taking their cue from the dollar's weakness and safe-haven demand, with gold for December delivery climbing to $722.40 an ounce, up $10.20, or 1.4%. .

Treasury prices slipped, with the benchmark 10-year note falling 5/32 to 103 8/32, yielding 4.343%. .

Overseas, China's inflation hit a 10-year high during August and its trade surplus widened to the second largest on record.

The Nikkei 225 closed with a 0.7% rise in Tokyo. The FTSE 100 climbed 1.5% in London.

By Kate Gibson