U.S. Stocks Up On Fed's Entering Commerical Paper Market

NEW YORK (MarketWatch) -- U.S. stocks on Tuesday wavered higher after a sell-off that has the major indexes trading at or near four-year lows as panicky investors offered a tentative cheer for the Federal Reserve's latest move to ease frozen credit markets.

Ahead of the opening bell, the Fed announced its unprecedented move to restart a market that has virtually shut down in recent weeks. .

"Today's announcement is not a complete surprise and it was speculated upon openly in the financial markets on Monday, which means that the announcement effect probably won't be that great," said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co.

The Fed step propelled the Dow Jones Industrial Average back above the 10,000 level, breached on Monday for the first time since October 2004, and recently at 10,024.24, up 68.74 points.

Of the Dow's 30 components, 21 posted early gains, led by Caterpillar Inc. , up 3.7%, and General Electric Co. , ahead 4%.

The Dow's biggest laggard proved to be Bank of America Corp. , down 13.7% after reporting a 68% profit fall, slashing its dividend and saying it will raise up to $10 billion in common stock.

"We have such frayed nerves; people are afraid to jump in no matter what," said Peter Bookvar, equity strategist at Miller Tabak.

The S&P 500 gained 4.32.points to 1,061.21, and the Nasdaq Composite added 4.54 points to 1,867.5.

"We have to keep in mind that we rallied about 400 points yesterday from the lows, and we have a 'sell-on-any news mentality.' This particular news from the Fed will help in the short-term... to keep yesterday's bottom in place," said Bookvar.

Energy and health care led sector gains among the S&P's 10 industry groups, while financial shares led sector losses.

Among the financial sector stocks weighing most heavily on the S&P, Apartment Investment and Management Co. fell 14.6%. The Denver-based company is among the nation's largest owners of apartment complexes, and recently said it expects to take a $3 million to $6 million hit in the third quarter due to hurricane damage to its properties.

Citi Investment research on Tuesday said it has reduced its year-end target for the broad S&P 500 index, citing the impact of the "viral spread" of credit problems.

Citi strategists now expect the S&P 500 index to reach 1,200 by year, compared with their previous expectations for the broad index to reach 1,475.

U.S. and global stocks slumped on Monday, with the Dow falling below the 10,000 mark for the first time since Oct. 26, 2004. Emerging markets were especially slammed, with Russian stocks leading the sell-off. .

After falling as much as 800 points during the session -- the largest intra-day point decline in the index's history - the Dow industrials ended off 369 points.

A surprisingly large rate cut from Australia on Tuesday reignited hopes for coordinated measures by central banks other than Sydney. But the Federal Reserve announced a fresh dollar auction with overseas counterparts but no rate cut. .

The Bank of England is expected to cut rates on Thursday, while the Bank of Japan opted to keep rates on hold.

Both Federal Reserve Chairman Ben Bernanke and European Central Bank President Jean-Claude Trichet have speeches scheduled, and the Fed is due to release minutes from the last interest-rate setting meeting.

Oil futures rose nearly $4 a barrel, and gold futures climbed almost $14 an ounce.

After the close, Alcoa Inc. will kick off earnings season, with analysts increasingly nervous about the report the aluminum giant will hand is amid dropping metals prices and the global financial crisis.

European stocks were lifted by a sharp rise in Volkswagen shares and the Fed's efforts to help financial markets. .

By Kate Gibson