By Kristina Peterson, MarketWatch
NEW YORK (MarketWatch) -- U.S. blue-chip stocks edged higher Tuesday after minutes from the Federal Reserve's last meeting showed the central bank registered moderate improvement in the economy and saw no reason to modify its major bond-buying program.
The Dow Jones Industrial Average (DJI) rose 20 points, or 0.2%, to close at 11691.
Paring earlier losses, the Nasdaq Composite (RIXF) fell 0.4% to 2681. The Standard & Poor's 500-stock index (SPX) shed 0.1% to 1270.
Traders said the market felt some relief that the minutes of the Fed's policy-making committee's Dec. 14 meeting contained no major surprises.
In the minutes, the central bank said that a stronger U.S. economy is among the reasons behind the rise in government bond yields, which may undermine its efforts to keep the recovery going via low interest rates. In November 2010, the Fed announced a $600 billion bond purchase program, known as "quantitative easing," or "QE2." Despite the improvement in the economy, Fed officials "generally felt that the change in the outlook was not sufficient to warrant any adjustments to the asset-purchase program," the minutes showed.
Market strategists were encouraged to see the Fed echo what many have characterized as a gradually recovering economy, and relieved to see no major changes to the quantitative easing program, said Bill Vaughn, portfolio manager at Evercore Wealth Management.
Investors "certainly would have been worried if there had been a sudden change in policy," he said.
Demand for U.S. Treasurys was mixed after the minutes, with increased interest in the two-year note. But demand fell for the 10-year note, pushing its yield down to 3.34%.
Gold fell sharply on portfolio rebalancing and better economic prospects in the U.S.
Crude-oil prices dropped to nearly $89 a barrel, while gold futures reversed the session's declines to begin a climb.
The dollar strengthened against both the yen and the euro. The U.S. Dollar Index (DXY) , which tracks the currency against a basket of others, rose 0.4%.
Materials weighed on the S&P 500 after UBS cut its stock-investment ratings on two construction aggregate companies to "neutral" from "buy," noting the stocks' strong performance in the fourth quarter even as the political appetite for road spending grew more uncertain. Vulcan Materials (VMC) fell 5.2%, while Martin Marietta Materials (MLM) shed 6.5%.
Food retailers also lagged after Bank of Montreal downgraded Safeway (SWY) , Vitamin Shoppe (VSI) and Whole Foods (WFMI) to "market perform" from "outperform," noting limited upside. Safeway fell 3.4%, Vitamin Shoppe was off 4.6%, and Whole Foods shed 3.4%. BMO also reduced its estimates for Supervalu (SVU) , noting the chain's inability to drive traffic, and Kroger (KR) , saying the fiscal year 2011 consensus could be too high given the challenging environment. Supervalu tumbled 6.4%, while Kroger lost 1.4%.
Morgan Stanley also cut Safeway and Supervalu, to "underweight" from "equal weight," saying Supervalu's strategy to reduce prices will collide with inflationary food costs.
General Motors (GM.XX) rose 2.3% after its U.S. light-vehicle sales climbed 8% in December thanks to continued strong demand for crossovers and pickups. GM on Tuesday also forecast that U.S. auto sales industrywide will reach 13 million to 13.5 million in 2011 as economic growth picks up and unemployment declines.
Meanwhile, the telecommunications sector gained, as shares of Motorola Mobility Holdings (MMI) rose 9.5% and Motorola Solutions (MSI) gained 6.6% as Motorola's long-awaited split into two entities officially took place Tuesday. Motorola Mobility consists of the company's consumer-focused smartphone and set-top-box business, while Motorola Solutions focuses on hand-held communication devices and public-safety radios.
Among stocks in focus, U.S.-listed shares of BP (BP) rose 2.5%, touching a six-month high following reports that compensation payouts for the Gulf oil spill may be much lower than expected and amid lingering rumors that the company is a takeover target.
Borders Group (BGP) plunged 13% after the troubled book retailer's Counsel Thomas Carney and Chief Information Officer D. Scott Laverty resigned. A unit of closely held Ingram Industries said it would continue to supply books to Borders despite the chain's difficult financial situation.
Quanta Services (PWR) rose 4.2% after winning a contract valued at $118.5 million by a coalition of Pennsylvania colleges and universities as well as economic development and research and development organizations to install a statewide fiber optic network.
In U.S. economic data on Tuesday, the Commerce Department reported that U.S. factory-goods orders unexpectedly rose 0.7% in November. Economists surveyed by Dow Jones Newswires had forecast a 0.1% decline.