Stocks Close Up After Rate Hike

The averages halt a three-day downturn. Oil is lower.
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Updated from 4:10 p.m. EDT

Stocks broke a three-day losing streak Tuesday and closed higher after

Federal Reserve

policymakers raised official interest rates for the 10th straight time and signaled no change in their campaign of "measured" tightening.

The

Dow Jones Industrial Average

I:DJI

rose 78.74 points, or 0.75%, to 10,615.67, and the

S&P 500

(SPX)

gained 8.25 points, or 0.67%, to 1231.38. The

Nasdaq Composite

(NASDAQ)

added 9.80 points, or 0.45%, to 2174.19.

"The move by the Fed today was certainly expected by the market, but the statement put some positive spin by giving us a good outlook on the economy," said Robert Pavlik, portfolio manager with Oaktree Asset Management. "The market was able to take the overall statement today and moved past the interest rate increase. There were positive things in the statement, along with retreating oil prices, to help us finish higher today."

About 1.44 billion shares changed hands on the

New York Stock Exchange

, with advancers beating decliners by a 9-to-7 margin. Trading volume on the Nasdaq was 1.46 billion shares, with advancers narrowly outpacing decliners 8 to 7.

The 10-year Treasury fell 9/32 in price to yield 4.39%, compared with 4.43% just before the decision, while the dollar fell against the yen and euro.

The policymaking Federal Open Market Committee raised the federal funds lending rate by a quarter-point to 3.5%, repeating its belief that "the stance of monetary policy remains accommodative" and that "accommodation can be removed at a pace that is likely to be measured."

The rest of the statement contained few surprises. The FOMC added an observation that "aggregate spending, despite high energy prices, appears to have strengthened since late winter," while noting that "core inflation has been relatively low in recent months."

"They didn't remove the measured stance, which means quarter-percent hikes seem more likely," says Barry Hyman, equity market strategist with Ehrenkrantz King Nussbaum. "The market is getting what it wants, which is a Fed that stays with the status quo."

Entering Tuesday, the market had fallen three straight sessions. During the slide, the Dow has lost 161 points, or 1.5%, the S&P 500 has fallen 22 points, or 1.8%, and the Nasdaq has dropped 52 points, or 2.4%.

"Economic numbers today have been better than expected, giving the market a bit of rally," says Peter Cardillo, chief market analyst with SW Bach & Co. "You could make a case that the market has overextended its decline on rate fears and energy fears."

Oil, whose run to record highs Monday torpedoed early gains in the stock market, finished down 87 cents to $63.07 a barrel in Nymex trading. Traders continued to cast a wary eye on Saudi Arabia, where threats to U.S. diplomatic offices kept the embassy closed for a second straight day.

Stocks were also helped Tuesday after the Labor Department reported that second-quarter productivity slowed to a 2.2% gain after a 3.2% increase in the first quarter. Economists had expected a 2% rise. Unit labor costs rose 1.3% in the second quarter after a 3.6% increase in the first quarter; economists were expecting a 2.7% rate of increase.

Ken Tower, chief market strategist with CyberTrader, says that "productivity came in better than expected -- much better when you factor in that the prior quarter was revised higher. But better-than-expected economic news is standard issue these days and likely factored into the market."

Also, the Commerce Department said wholesale inventories rose 0.7% in June. Analysts had expected a gain by 0.4% after a 0.1% increase in May.

Stronger sectors Tuesday included technology, utilities, semiconductors, health care and retail. Energy and airlines were among weaker-performing areas.

Biogen Idec

(BIIB) - Get Report

and

Elan

(ELN)

led the Instinet leader board Tuesday after disclosing results of a safety screening for patients taking their multiple sclerosis drug Tysabri.

The companies said they found no new cases of the rare brain disease progressive multifocal leukoencephalopathy in the roughly 2,000 patients they evaluated. Tysabri was pulled from the market in February. Biogen added $2.82, or 7.3%, to $41.24. Elan rose $1.09, or 13.6%, to $9.09.

Ford

(F) - Get Report

said it will restructure and cut staff in its North American sales and marketing operations, according to

The Wall Street Journal

. While Ford didn't disclose how many jobs would be eliminated, 20% to 25% of the automaker's current sales and marketing staff could be cut, according to the report. Ford previously announced plans to cut up to 2,700 jobs in North America this year. Ford was up 7 cents, or 0.7%, to close at $10.44.

Among the day's earnings,

MCI

(MCIP)

swung to a second-quarter profit of $64 million, or 19 cents a share, from a loss of $71 million, or 22 cents a share, a year ago. Revenue fell 10% to $4.7 billion. The Thomson First Call consensus was for revenue of $4.6 billion. MCI, which is planning to merge with

Verizon Communications

(VZ) - Get Report

, was up 7 cents, or 0.3%, to finish at $25.38.

Blockbuster

(BBI) - Get Report

posted a second-quarter loss of $57.2 million, or 31 cents a share, down from a profit of $48.6 million, or 27 cents a share, a year ago. Excluding items, Blockbuster lost $40.2 million, or 22 cents a share. Revenue declined 1.6% to $1.4 billion from a year ago. Analysts were expecting a loss of 10 cents a share on revenue of $1.45 billion.

Looking ahead, Blockbuster said it is no longer on track to meet its previous forecast for the full year, citing a decline in the video rental industry, as well as slumping box-office sales. Blockbuster dropped 92 cents, or 11.5%, to $7.09.

May Department Stores

(MAY)

reported second-quarter earnings of $52 million, or 16 cents a share, down from $101 million, or 33 cents a share, a year ago. Results included charges of $83 million related to

Federated's

(FD)

acquisition of the company. Sales climbed 16.6% to $3.45 billion. May lost 13 cents, or 0.3%, to $40.07.

Late Monday,

Sonus Networks

(SONS)

posted quarterly earnings of $9.7 million, or 4 cents a share, up from $4.9 million, or 2 cents a share, a year ago. Revenue rose to $58.1 million from $42.4 million a year earlier. Legg Mason upgraded Sonus to hold from sell on the news. Shares jumped 10%, up 44 cents to $5.13.

After the market closes Tuesday, earnings reports are expected from

American International Group

(AIG) - Get Report

,

Cisco Systems

(CSCO) - Get Report

and

Walt Disney

(DIS) - Get Report

.

On the ratings front, Deutsche Bank downgraded shares of

Visteon

(VC) - Get Report

to hold from buy, citing valuation concerns. The stock fell 10 cents, or 1%, to $9.75.

Delta Air Lines

(DAL) - Get Report

fell 12.6% after its treasurer, Todd Helvie, left the company and Merrill Lynch downgraded the stock to sell from neutral. Delta was down 28 cents to close at $1.95.

Overseas markets were mostly higher, with London's FTSE 100 up 0.2% to 5352 and Germany's Xetra DAX adding 1.1% to 4891. In Asia, Japan's Nikkei rose 1% overnight to 11,900, while Hong Kong's Hang Seng lost 0.4% to 15,048.

To view Gregg Greenberg's video take on today's market, click here

.