Stocks Get Lift From Yuan Talk

Updated from 4:07 p.m. EDT

Stocks closed higher Tuesday, reversing earlier losses after the Treasury Department released a report that stopped short of accusing China of currency manipulation.

The Dow Jones Industrial Average rose 79.59 points, or 0.78%, to 10,331.88, after trading as low as 10,213.14 earlier in the session. The S&P 500 added 8.11 points, or 0.7%, to 1173.80. The Nasdaq Composite rose 9.72 points, or 0.49%, to 2004.15.

The Treasury Department said in a report to Congress that China's currency policies are causing market distortions and endangering economic growth, but declined to classify the country as an offender under a federal currency manipulation statute.

While the statement is likely to anger U.S. businesses that believe China gets an export edge by keeping the yuan artificially low, it pleased stock investors who fear the uncertainty of government sanctions.

"The market took the attitude that we can somehow avoid a trade war with China," said Peter Boockvar, equity strategist with Miller Tabak. "It's just semantics, as Treasury Secretary John Snow is still talking about problems without coming out and saying China is manipulating. Just because they didn't use the term 'manipulative,' people think they need to buy stocks. Nothing changes, but hopefully it'll calm down Congress."

Trading volume on the New York Stock Exchange was 1.89 billion shares, with advancers beating decliners by a 5-to-4 margin. Volume on the Nasdaq was 1.52 billion shares, with advancers outpacing decliners 8 to 7.

In other markets, the 10-year Treasury was up 2/32 in price to yield 4.12%, while the dollar rose against the yen and euro.

"The bond market is amazing," said Ken Tower, chief market strategist with CyberTrader. "Despite today's worse-than-expected inflation news, the long end of the curve has reacted little. Yesterday, yields were near three-month lows. The bond market's lack of panic is bullish for stocks."