Jan. 9, 2013 at 2:21 PM ET
Stocks came off their highs but still held modest gains across the board, lifted by industrials, after Dow component Alcoa kicked off the fourth-quarter earnings season on a positive note.
The Dow Jones Industrial Average rallied, led by Boeing and United Technologies, after sliding in the last two sessions.
The S&P 500 and the Nasdaq also rose. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, slid near 13, plummeting more than 40 percent in the last two weeks. (Read More: Why VIX's Recent Plunge May Be Bad for Stocks)
Most key S&P sectors were in positive territory, led by industrials and health care, while energy slipped.
"The market was looking for a reason to rally and Alcoa gave it that because they hit the number right on the head and they talked about what they saw in China as being very positive," said Kenny Polcari, director of floor operations at O'Neill Securities. "But that could all change tomorrow or the day after when someone comes out and says China is weakening and so we're going to be stuck in this specific trading range."
Alcoa climbed after the aluminum producer hit its earnings target and topped revenue expectations. The company also said it expects global aluminum demand to rise to 7 percent in 2013, up from 6 percent in 2012. In addition, at least two brokerages raised their price target on the company.
"Alcoa's results are generally considered a bellwether for the global economy and the fact that the aluminium giant forecasts higher demand in 2013 appeased investors," Chris Weston, a trader at IG Markets wrote in a note.
Still, investors remained cautious over the fourth-quarter earnings season as estimates have been sharply lowered from where they were last October. Earnings are expected to grow by 2.7 percent, according to Thomson Reuters data.
But analysts say the lowered expectations leave room for companies to surprise to the upside even if results aren't stellar.
Widely-followed hedge fund manager Dan Loeb's Third Point disclosed a 8.24 percent stake in Herbalife, according to a 13G filing. Herbalife shares were higher following the news.
In December, hedge fund manager Bill Ackman of Pershing Square outlined his case for shorting the nutrition and skin-care products company. Ackman also criticized Herbalife, saying the company is a "pyramid scheme" that has grown rapidly without demonstrating "much substance" to justify the growth.
Morgan Stanley plans to cut 1,600 jobs, or approximately 6 percent of its workforce, in its investment banking unit, according to sources. The latest round of cuts comes in addition to a 6 percent reduction last year.
Boeing's 787 Dreamliner jet suffered a third mishap this week after Japan's All Nippon Airways said it canceled a 787 Dreamliner flight due to brake problems. The latest problem follows a fuel leak on Tuesday that forced a Japan Airlines 787 aircraft to cancel take-off at Boston's Logan International Airport, a day after a different JAL 787 aircraft caught fire after a flight to Boston from Tokyo. Still, shares of Boeing rallied, rebounding from two days of declines. (Read More: Airlines Stick With Boeing 787 Despite 'Teething Problems')
Clearwire received an unsolicited takeover bid of $3.30 a share from Dish Network. Sprint Nextel already has an agreement to acquire 50 percent of Clearwire it doesn't already own for $2.97 a share. Clearwire said its ability to enter other transactions is limited by other arrangements, but that it has a fiduciary duty to discuss the Dish offer.
Bank of America slumped after Credit Suisse downgraded the financial giant to "neutral" from "outperform." BofA was the best performer on the Dow in 2012.
Facebook crossed above $30 a share for the first time in six months after the social-networking giant sent out a press event invitation for next week at its Menlo Park campus. The invitation has some buzzing about a phone, while others speculate it could be a search engine.
Meanwhile, Apple slipped, adding to recent declines. The iPhone maker's stock is down almost 25 percent from its all-time high and is the worst performer on the Nasdaq 100 index over the last four months.
Also among earnings, Apollo Group plunged to lead the S&P 500 decliners after the for-profit education company posted lower enrollment rates for the third-consecutive quarter and slashed its operating profit estimates for 2013.
Constellation Brands rallied after the wine company topped earnings expectations and boosted its forecast for the second time this fiscal year. Warehouse club operator PriceSmart is schedule to post earnings after the closing bell.
Weekly mortgage applications rose last week, rebounding from three consecutive weeks of declines, according to the Mortgage Bankers Association.
Treasurys pared their gains after the government auctioned $21 billion in 10-year notes at a high yield of 1.863 percent. The bid-to-cover was 2.83.
Technology stocks will be in focus as the Consumer Electronics Show continues in Las Vegas. Reuters reported that one of Microsoft's top Windows executives said at the show that the group has sold 60 million licenses and upgrades for its Windows 8 operating system in the 10 weeks since its launch.
—By CNBC's JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)
Coming Up This Week:
THURSDAY: Jobless claims, wholesale trade, natural gas inventories, Fed's George speaks, 30-yr bond auction, Fed's Bullard speaks, Fed's balance sheet, money supply, Fed's Kocherlakota speaks, Herbalife analysts day, videogame sales data release; Earnings from Chevron (interim report), Ruby Tuesday
FRIDAY: International trade, import and export prices, Fed's Plosser speaks, Treasury budget, Best Buy to report holiday sales; Earnings from Wells Fargo
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