Stocks Finish Modestly Higher; Bonds Tumble

The Dow edges up as investors continued to assess President Obama's deal to extend Bush-era tax cuts. Gregg Greenberg has The Real Story.
By Shanthi Bharatwaj ,

NEW YORK (

TheStreet

) -- Stocks finished mildly higher Wednesday, getting a lift from strength in the financials, as investors continued to grapple with the economic ramifications of President Obama's new tax deal.

The

Dow Jones Industrial Average

rose 13 points, or 0.1%, to 11,372. The blue-chip index traded in a tight range of roughly 60 points for the session. The

S&P 500

gained 4 points, or 0.4%, to 1,228, while the

Nasdaq Composite

added 11 points, or 0.4%, to close at 2,609.

Bonds tumbled Wednesday in part due to the perception that extending the Bush-era tax cuts will boost the economy, making safe haven assets less attractive. There's also concern that the tax cuts could lead to a higher deficit and force the government to issue more debt. The benchmark 10-year Treasury note was off by 26/32, lifting the yield to 3.238%. Earlier, yields had climbed past 3.3%, the highest level since June. The yield on 30-year bonds climbed to 4.427%.

.

Precious metals also came under a wave of profit booking, as investor risk appetite grew. The most actively traded February gold contract plunged by $25 or nearly 2% to settle at $1,383.2 an ounce. The March silver contract tanked 5% to settle at 28.252 an ounce.

"Gold tends to be a speculative category that people move into when they're fearful of inflation of economic problems," said Joe Heider, principal at Rehmann Financial. "So, if people believe the economic recovery is really occurring, then I think the lust for gold will be diminished," he said.

The financial sector saw the session's strongest gains with

Bank of America

(BAC) - Get Report

,

JPMorgan Chase

(JPM) - Get Report

and

American Express

(AXP) - Get Report

topping the Dow. Regional banks including

Zions Bancorp

(ZION) - Get Report

,

Fifth Third Bancorp

(FITB) - Get Report

and

Regions Financial

(RF) - Get Report

surged as well.

Growing optimism about the economic recovery is causing the yield curve to steepen, which may help banks by making lending more attractive.

"I think the tax cuts and the reduction on the employee side are a tremendous opportunity for those billions of dollars to go right back into the economy. Plus the immediate write-off next year for business investments bodes well for manufacturing," Rehmann Financial's Heider said, adding that the selloff in the bond market also suggested that the market expects the economy to strengthen and rates to rise.

Shares of

AIG

(AIG) - Get Report

were halted in the final hour of the trading session. The company said that it would repay its Federal Reserve credit line in its bid to seek independence from the government. Shares were down 3.9% as of 3:30 p.m. EST.

Basic materials stocks were the weakest performers of the day. Within the Dow,

McDonald's

(MCD) - Get Report

,

United Tech

undefined

and

Boeing

(BA) - Get Report

were among the biggest laggards.

Shares of

McDonald'sshed 2% to $78.74 after it said November same-store sales rose 4.8%, missing expectations for monthly growth of 5.6%.

Shares of Chinese online retailer

E-Commerce China Dangdang

(DANG)

began trading on the

New York Stock Exchange

for the first time after the company priced its initial public offering of 17 million American depositary shares at $16. Shares soared 87% to $29.91 on the first day of listing.

Chinese online television company

Youku.com

(YOKU)

also made its debut on the NYSE after pricing its initial public offering of 15.9 million American depositary shares at $12.80 each. The stock jumped 161% to $33.44.

Netflix

(NFLX) - Get Report

was off by 0.8% to $188.23. The company named David Wells chief financial officer effective Dec. 10. Outgoing CFO Barry McCarthy said he wants to "pursue broader executive opportunities outside the company." Separately, Jefferies downgraded the stock to a hold from a buy.

Netflix also said it entered into an agreement with

Walt Disney

(DIS) - Get Report

that will allow subscribers to watch hundreds of episodes from ABC, Disney Channel and ABC Family 15 days after the show airs. Disney's stock was off by 0.9% at $36.97.

Fortune Brands

( FO) rose 1% to $61.76 after it confirmed reports that it would break itself up into three separate companies. Fortune will spin off its home and security division to shareholders, sell or spin off its golf products unit and continue as a public liquor company.

Weyerhaeuser

(WY) - Get Report

plunged 3.1% to $17.28 after a

UBS analyst downgraded the stock to neutral from buy citing the firm's valuation.

Home Depot

(HD) - Get Report

rose 1.4% to $34.03 after it lifted its full-year profit forecast on higher sales. It expects to earn $1.97 a share in the year ending Jan.30, higher than its earlier forecast of $1.94 a share.

Wal-Mart

(WMT) - Get Report

plans to stop paying an extra $1 an hour to new hires for working on Sunday. The company also said it is increasing its 401K match to 6%. The stock was down 0.5% to $54.49.

Earlier, the

Mortgage Bankers Association said mortgage applications volume fell 0.9% in the week ended Dec. 3

on a seasonally adjusted basis from the prior week.

The Energy Information Administration said crude oil supplies fell 3.8 million barrels in the week ended Dec. 3, exceeding the decline of 1 million barrels that analysts polled by Platts had been anticipating.

Late Tuesday, the American Petroleum Institute said oil supplies shed 7.34 million barrels last week.

The January crude oil contract was down by 30 cents to trade at $88.39 a barrel.

The euro was last trading $1.3263 to the dollar. Ireland's €6 billion austerity budget passed an initial vote in parliament Tuesday, paving the way for Ireland to receive the €67.5 billion aid package from the European Union and the International Monetary Fund. The FTSE in London dropped 0.2% and the DAX in Frankfurt declined by 0.4%.

Hong Kong's Hang Seng lost 1.4% amid growing speculation that

China could raise interest rates as early as this weekend to slow economic growth and curb inflation. Japan's Nikkei added 0.9%.

The dollar index, which compares the dollar to six major currencies, rose 0.3%.

-- Written by Melinda Peer and Shanthi Bharatwaj in New York

.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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