NEW YORK - A late-day rally gave stocks a moderate advance Tuesday as a second day of sharply lower oil prices calmed investors uncertain about the direction of interest rates.
Better-than-expected earnings from Coca-Cola Co. and United Technologies Corp. propped up the Dow Jones industrials, while mild wholesale inflation data also lent some support to the market. But concerns about conflict in the Middle East made investors uneasy about buying: Stocks spent most of the session lower before recovering late in the day.
John Forelli, portfolio manager for Independence Investments, said traders were bracing for Federal Reserve Chairman Ben Bernanke's appearance before Congress Wednesday.
"It's the first time in a while I can remember that we were within three weeks of a Fed meeting and Fed fund futures were 50-50," Forelli said, meaning the market is divided on whether the central bank will boost interest rates when it meets Aug. 8. "Bernanke tomorrow could be a linchpin for a rally or continued malaise in the trading range we've seen."
While a modest rise in core producer price index helped the inflation picture, analysts said the stronger-than-forecast gain in overall PPI raised the possibility of more rate hikes from the Fed and also unnerved the bond market. Downbeat housing data renewed fears about an economic slowdown.
The Dow climbed 51.87, or 0.48 percent, to 10,799.23, after sinking as much as 63 points earlier.
Broader stock indicators also recouped early declines. The Standard & Poor's 500 index gained 2.37, or 0.19 percent, to 1,236.86, and the Nasdaq composite index rose 5.50, or 0.27 percent, to 2,043.22.
Advancing issues overtook decliners by 6 to 5 on the New York Stock Exchange. Stocks barely budged Monday amid nervousnous about buying following sharp losses last week, Wall Street's worst in 2006.
However, the rise in overall PPI had the bond market worried about inflation weakening the value of fixed-income investments. The yield on the 10-year Treasury jumped to 5.14 percent from 5.07 percent late Monday.
In economic news, the Labor Department said PPI grew 0.5 percent in June, ahead of estimates for a 0.3 percent rise. Core PPI - excluding volatile energy and food costs - increased 0.2 percent to meet analyst expectations.
Meanwhile, the National Association of Home Builders said its index of new home sales slumped 3 points to 39 in July - a 15-year low - citing pressure from higher lending costs.
The day's data reinforced Wall Street's anxiety about the economy. Although recent reports have provided evidence of slowing economic growth, rising inflation from persistently high oil prices could prompt the Fed to keep boosting interest rates - and potentially trigger an economic downturn.
That comes as central banks worldwide are also lifting rates to contain inflation, which would curb global demand and foreign investments as money becomes more expensive to borrow. On Wednesday, Bernanke's speech and the latest reading of the Labor Department's consumer price index could lead stocks sharply in either direction.
"I think the key is going to be the monetary policy situation," said Bill Strazzullo of Bell Curve Trading. "Not just in the United States, but all over the world. We might be close to being done, but Japan is just getting started."
Tension in the Middle East sent crude futures soaring before trades locked in profits toward the end of the session. A barrel of light crude jumped to $76.55 but fell $1.76 to settle at $73.54 on the New York Mercantile Exchange.
Elsewhere, the U.S. dollar fell against the Japanese yen. Gold dropped to $630 an ounce.
Dow Coca-Cola said higher sales and overseas growth helped its profit gain 7 percent to beat targets by 2 cents per share. Coca-Cola climbed 85 cents to $43.55.
United Tech, also a Dow component, said its profit grew 14 percent as demand for aerospace products offset weakness at its Carrier heating unit. United Tech advanced 92 cents to $58.88.
Johnson & Johnson weighed on the Dow, slumping 31 cents to $60.60 despite a 9 percent jump in earnings on record sales and less marketing and overhead costs.
Merrill Lynch & Co.'s earnings swelled 42 percent on solid trading activity despite the second-quarter downturn in the markets. Merrill Lynch nonetheless slid 77 cents to $67.50.
Japan's market fell for a fifth straight session to a one-month low, with the Nikkei stock average sinking 2.75 percent amid worries about the violence in the Middle East. Britain's FTSE 100 lost 0.34 percent, Germany's DAX index fell 0.37 percent and France's CAC-40 was lower by 0.33 percent.
Preliminary consolidated volume on the NYSE was 2.58 billion shares, which led the 2.24 billion shares that changed hands Monday.
The Russell 2000 index of smaller companies gained 3.95, or 0.58 percent, to 681.64.