By Jonathan Cheng
U.S. stocks edged up in afternoon trading as investors prepared for the European policy makers' gathering in Brussels, hoping for a speedy resolution to the region's debt woes.
The Dow Jones Industrial Average gained 20 points, or 0.2%, to 11727 in recent trading. The blue-chip index shot up 162 points after the opening bell, only to slide into negative territory amid discouraging headlines about progress on the European debt crisis.
The markets were also under pressure from Amazon.com's release of disappointing earnings numbers, which weighed heavily on consumer-discretionary stocks and pulled down the technology-heavy Nasdaq Composite. Energy stocks also pared early gains after the Department of Energy reported crude-oil inventories were much higher than expected.
The Standard & Poor's 500-stock index slipped two points, or 0.1%, to 1227, while the Nasdaq Composite gave up 21 points, or 0.8%, to 2618.
The gyrations came after reports that German lawmakers have approved leveraging the euro zone's emergency bailout fund. This action puts support behind German Chancellor Angela Merkel as she heads to the European summit to negotiate a comprehensive plan to fix the region's credit crisis.
However, other headlines suggested that the size of the bailout fund may not be clear for several weeks, damping some of the initial enthusiasm. Separately, European Central Bank Executive Board member Juergen Stark warned Wednesday of new "distortions" in the economy created by excessive liquidity in the financial markets and stemming from the impact of low interest rates. Stark is expected to leave the ECB by the end of the year after announcing plans to resign.
"I'm not expecting a lot of details to come from the European Union--the strategy right now is to keep kicking the Greek issue down the road and buy more time," said Lionel Mellui, partner at Momentum Trading Partners. "You've had a rally that's been fuelled by hopes, but it looks like more of a tactical rally than something very sound."
"The European Union keeps sending us contradictory comments, so a lot of people are really confused," he said. "The best that we can have today is a strong commitment to resolve this, but I don't see how they can speak with one voice--they're also facing national protests."
Sean Kraus, chief investment officer at CitizensTrust, said the worst-case scenario would be a major deadlock, in which case "nothing really has been accomplished and this run that we've had is almost meaningless," Kraus said, predicting a decline to the early October lows. On the other hand, "If there's been an agreement on a haircut for Greek bonds, an extension of the bailout fund and a commitment to maintaining the stability of Europe's banking system, that'll be sufficient to prevent the market from falling markedly."
Pulling on the upside Wednesday were the least economically sensitive stocks in the market: telecommunications and health-care issues. But Boeing was the strongest performer among Dow components, rising 4.4% after the aerospace giant beat third-quarter earnings estimates and raised its full-year outlook, though revenue was weaker than expected.
Amazon.com slumped 12% after the online retailer reported third-quarter earnings that missed expectations, as well as a drop in operating margins. It provided a disappointing outlook for the fourth quarter, saying an operating loss was possible. Amazon.com, which closed at a record high earlier this month, had fallen 4.4% on Tuesday.
"Amazon is a great backdrop for what we see going forward--earnings expectations are being ratcheted down by most companies reporting now, and there aren't as many companies beating their estimates," said Brian Amidei, managing director and partner at HighTower in Palm Desert, Calif.
In overseas markets Wednesday, European stocks swung between gains and losses before finishing mixed for the day. The Stoxx Europe 600 finished with a 0.2% gain while Germany's DAX fell 0.5%.
Asian bourses erased early losses to trade mostly higher after Chinese Premier Wen Jiabao said China should "fine tune" its policy at an appropriate time, which investors took to mean monetary policy could become more accommodative. China's Shanghai Composite added 0.7% after being down as much as 0.6% earlier in the session.
Gold futures rose to about $1,730 an ounce, while crude-oil futures fell to around $91 a barrel after oil inventories came in much higher than expected. The U.S. dollar gained against the euro but slipped against the yen.
In economic news, U.S. durable-goods orders decreased by 0.8% in September from the prior month, largely in line with estimates. But in a promising sign, spending by businesses on equipment unexpectedly jumped, suggesting companies have confidence in a recovery that slowed sharply this year and ignited fears of another recession. Separately, new-home sales rose 5.7% in September from the month before, the first gain in five months, though prices continued dropping.
In corporate news, MF Global (MF) dropped 21% after it hired investment bank Evercore Partners and at least one other bank to help it determine whether it should sell itself to another company, or pursue mergers or other strategic options such as asset sales, according to The Wall Street Journal.
Sprint Nextel (S) tumbled 6.7%, though the telecommunications company reported a narrower-than-expected third-quarter loss. The drop added to a 43% decline over the past year through Tuesday's close.
Ford Motor (F) fell 6.5% after the auto maker reported third-quarter earnings that fell short of forecasts, although revenue beat expectations.
Biogen Idec (BIIB) ran up 9.5% after announcing positive results from a Phase 3 trial of a treatment for multiple sclerosis, while Human Genome Sciences (HGS) shed 23% after reporting a wider-than-anticipated loss.
-By Jonathan Cheng