Stocks extend rally as Cat lifts forecast

NEW YORK -- The stock market extended its weeklong rally even as it struggled with more worries about the banking industry.

Major market indexes seesawed through much of Tuesday's trading and ended with gains of less than 1 percent. Better-than-expected results from companies such as Caterpillar Inc. spurred shares generally higher, although financial stocks slid on reports of losses at several regional banks.

Investors also digested a mixed report from Federal Reserve chairman Ben Bernanke, who restated the Fed's view the economy is still on track to recover this year, if slowly. He also predicted rising unemployment.

Analysts said the market's more subdued tone was natural after stocks surged more than 8 percent since the start of last week.

Caterpillar joined other major companies in issuing an improved 2009 profit forecast. Second-quarter profits fell 66 percent but still came in ahead of expectations. Shares in the heavy equipment maker, considered a bellwether of the global economy, rose 7.7 percent.

Banks stumbled after Regions Financial Corp., Comerica Inc. and Zions Bancorp posted second-quarter losses that stirred worries about rising loan defaults, a persistent concern for banks as unemployment approaches 10 percent.

Technology shares could drive trading today. Chipmaker Advanced Micro Devices Inc. slid in after-hours trading after posting a wider-than-expected loss after the bell, while Apple Inc. rose after reporting a 15 percent jump in profits.

Tech stocks have led the market's rally from 12-year lows in early March. The Nasdaq composite index is up 21.5 percent for the year, compared with 5.7 percent for the Standard & Poor's 500 index and 1.6 percent for the Dow Jones industrial average.

David Chalupnik, head of equities at First American Funds, said it could be harder for stocks to push higher because investors are becoming harder to impress. "Expectations are being ramped up," he said. "As earnings continue to come out better than expected you may not get that lift anymore."

The Dow rose 67.79, or 0.8 percent, to 8,915.94, its highest level since January. Seven straight advances have pushed the blue chips up 9.4 percent.

The Dow on Monday erased its loss for the year with a 104-point gain Monday.

The S&P 500 index rose 3.45, or 0.4 percent, to 954.58, its highest close since November.

The Nasdaq rose 6.91, or 0.4 percent, to 1,916.20, its 10th straight gain. The last time the index rose 10 straight days was in July 1997.

Advancing stocks narrowly outpaced those that fell on the New York Stock Exchange, where consolidated volume came to 5.2 billion shares compared with 4.9 billion Monday.

Mike Binger, portfolio manager at Thrivent Investment Management, said stocks have been rising because company forecasts are signaling that the worst for the economy could be over.

"The sequential declines in revenue have stopped, which a lot of the companies are calling stabilization," he said.

Treasury investors saw Bernanke's remarks as reaffirming that the Fed would keep interest rates low for the time being -- which supports the value of bonds already in circulation. His assurance that inflation would remain at bay also helped lift the bond market.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.48 percent from 3.60 percent late Monday.

In Tuesday's trading, Caterpillar rose $2.81 to $39.46 and was the biggest gainer among the 30 stocks that make up the Dow. Drugmaker Merck & Co. also beat expectations, helping to send health care stocks broadly higher. Merck's own shares jumped $1.71 or 6.1 percent to $29.65.

Among financial companies, Regions Financial fell 62 cents, or 15.4 percent, to $3.42, Comerica slid $2.31, or 10.1 percent, to $20.51 and Zions fell $1.54, or 12.6 percent, to $10.68. Investors are worried that rising losses on loans will erode profits in the coming quarters.

Unease about small-business lender CIT Group Inc. flared up again after the company said a $3 billion loan from bondholders still might not be enough to cover a cash drain. The stock market had risen broadly on Monday on hopes the company would be able to avoid bankruptcy.

Banks are suffering more losses on loans because unemployment remains at a 26-year high of 9.5 percent and is expected to rise. And home prices in many markets are still falling, leaving homeowners and banks holding assets that are losing value.

The dollar was mixed against other major currencies, while gold prices fell.

Oil prices rose 74 cents to settle at $64.72 a barrel on the New York Mercantile Exchange.

In other trading, the Russell 2000 index of smaller companies fell 1.74, or 0.3 percent, to 525.22.

Overseas, Britain's FTSE 100 gained 0.9 percent, Germany's DAX index rose 1.3 percent, and France's CAC-40 rose 1 percent. Japan's Nikkei stock average jumped 2.7 percent.