NEW YORK (TheStreet) -- Stocks finished mixed Tuesday as a late rally on a report that European leaders may create a second bailout fund to contain the region's debt crisis ran out of steam.

According to a report from the Financial Times, the current European Financial Stability Fund would continue to exist, while officials would introduce a new €500 billion facility in mid-2012. Plans for doubling up the financial firewall will be presented at the European Union summit later this week.

Stocks wavered much of the day as investors awaited more details on Europe's plans to get its fiscal house in order and avert a sweeping Standard & Poor's rating downgrade for the eurozone after the ratings agency placed 15 countries on negative watch late Monday.

The Dow Jones Industrial Average rose 52.3 points, or 0.4%, to finish at 12,150. The blue-chip index ran as high as 12,216 following the FT report.

The S&P 500 added 1.4 points, or 0.1%, to close at 1258, while the Nasdaq fell 6.2 points, or 0.2%, to settle at 2650.

The FT report said European leaders are now hoping that the financial markets will approve of this "three-pronged" rescue system consisting of the two separate rescue funds -- a new €500 billion facility and the existing €440 billion fund -- and increased support for the International Monetary Fund. The system would accompany plans for European Union treaty rewrites aimed at tightening budget rules for the eurozone.

"My brain is numbed to new European bailout funds, not to mention late afternoon reports on them from the UK press," says Lou Brien, a market strategist at DRW Trading. "I think we all have to wait for the end of the week to see what they come up with at the EU summit. Headline risk continues to be rampant."

Standard & Poor's said it may downgrade Europe's existing bailout fund, in addition to Germany and 14 other eurozone members, which it put on "credit watch with negative implications" after the close Monday. Some analysts think the threat by S&P gives more incentive for Europe's leaders to introduce stronger fiscal discipline, integration and budget alignment across the eurozone.

The rating agency's warnings come as European leaders appear to be gaining ground on re-establishing confidence in the eurozone via changes to the European Union treaty. German Chancellor Angela Merkel and French President Nicolas Sarkozy said Monday that their proposal includes punishment for countries whose deficit exceeds 3% of gross domestic product, an earlier introduction of Europe's permanent bailout fund to 2012 and a promise to never ask private investors to shoulder the losses in debt-burdened countries.

The market expects to learn how leaders will move forward on these plans at the European Union summit in Brussels this Thursday evening, continuing into Friday. S&P said it will conclude its review following the meeting.

"Friday's European summit may not be the last shot at crafting a lasting solution, but investors will want to see not only discipline but pragmatism in the outlines of any plan," Nicholas Colas, chief market strategist at ConvergEx Group, said in a client note.

Germany's DAX closed down 1.2%, while London's FTSE finished 0.01% higher. Overnight, Japan's Nikkei Average settled 1.4% lower, and Hong Kong's Hang Seng Index closed down 1.2%.

"The market is reacting more to plans that may put the eurozone on better footing going forward as well as positive economic data from the U.S.," said Robert Pavlik, chief market strategist with Banyan Partners.

Pavlik added that while retails investors are still sitting on the sidelines perplexed, portfolio managers are pushing stocks higher. "With just three weeks left in the year, portfolio managers see this as a last ditch effort to improve their performance. They're trying to populate their portfolios ahead of their year-end statements," he explained.

If the U.S. economy continues to "muddle along," the U.S. stock market seems like a safe haven, wrote Ed Yardeni, president and chief investment strategist of Yardeni Research. Traditional sectors such as utilities, consumer staples and health care have been among the best performers of the S&P 500 year-to-date and have all beaten returns from European stocks markets, he added.

In corporate news, Leap Wireless ( LEAP) was up 1% after the company said it will buy wireless spectrum in the Chicago area from Verizon Wireless in a $204 million deal. The company plans to sell excess spectrum, including its Savary Island Wireless venture to Verizon.

Ford ( F) was down 0.5%. The company is searching for candidates to replace current CEO Alan Mulally, who is expected to leave the company within two years, The Wall Street Journal reported, citing people familiar with the matter. However, a Ford spokeswoman said there is no search underway.

Toll Brothers ( TOL) rose 2.7% after the homebuilder posted fourth-quarter earnings of $15 million, or 9 cents a share, down from year-earlier earnings of $50.5 million, or 30 cents. The year-earlier quarter included a tax benefit of $59.9 million. Revenue rose 6% to $427.8 million. Analysts expected Toll to earn 5 cents a share in the quarter on revenue of $424.3 million.

Alpha Natural Resources ( ANR) fell 1.2% to $24.88. The company will pay $200 million to resolve civil and criminal penalties linked to a disaster that killed 29 coal miners last year and other liabilities it inherited when it bought Massey Energy in June, the Journal reported. The accident at the Upper Big Branch mine in Montcoal, W.Va., was the worst U.S. mining disaster in 40 years. The settlement is expected to be announced Tuesday morning.

January oil futures rose 29 cents to finish at $101.28 a barrel, and February gold futures fell $2.70 to $1,731.80 an ounce.

The benchmark 10-year Treasury was down 7/32, raising the yielding to 2.080%, and the U.S. dollar traded sideways against a basket of currencies. The euro was down 0.06% against the dollar.

No major economic releases were slated in the U.S. on Tuesday.

-- Written by Andrea Tse and Chao Deng in New York.

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