Investors slowed their move into the market from a sprint to a walk.
Stocks tacked on modest gains Tuesday to extend a rally to a fourth day following a strong rise in pending home sales, the latest encouraging signal for the troubled housing market.
The Dow Jones industrial average briefly pushed into the black for 2009 but ended 35.5 points below the break-even mark. In March, the blue chips were down more than 2,200 points, or 25.4 percent, for the year.
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The Dow rose 19.43, or 0.2 percent, to 8,740.87. The index at times traded above 8,776.39, its finish for 2008. While it remains down moderately for the year, the Dow is up 5.3 percent in four days, its best run since early April.
A report showing April recorded the biggest jump in pending home sales in nearly eight years gave the market fresh fuel to push higher. But a slump in financial shares kept overall buying in check as several big banks said they would sell more stock to repay federal bailout money.
The modest moves followed huge gains on Monday, when indicators jumped more than 2 percent on positive signs for manufacturing and other good economic signals.
William Rutherford, president of Rutherford Investment Management LLC in Portland, Ore., worries that even with promising economic data the three-month rally in stocks might be overdone.
"The economy has to recover nicely to justify the recent run-up and I don't know whether it's got that much momentum in it," he said.
The Standard & Poor's 500 index rose 1.87, or 0.2 percent, to 944.74, and the Nasdaq composite index rose 8.12, or 0.4 percent, to 1,836.80. Both indexes are up for 2009.
Financial stocks mostly lost ground as several banks said they would sell shares to raise capital. Adding to their share base can dilute the value of existing shares.
Morgan Stanley said it will raise $2.2 billion in a stock offering, after JPMorgan Chase & Co. and American Express Co. announced similar plans late Monday. JPMorgan will offer $5 billion of common stock, while American Express is seeking to raise $500 million.
Morgan Stanley rose 20 cents to $30.09, while JPMorgan fell $1.61, or 4.5 percent, to $34.50. American Express slid $1.28, or 4.9 percent, to $24.71.
Meanwhile, Goldman Sachs Group Inc. has sold part of its stake in Industrial & Commercial Bank of China to raise more than $1.9 billion to help repay bailout money. Goldman fell $1.20 to $143.13.
"We've seen a drumbeat of new issuance in the banking sector. So far, the market has been able to absorb the supply pretty well. It's going to be yet another test," said Craig Peckham, an analyst at Jefferies & Co.
Investors drew some confidence from slight improvements in auto sales reports for May following the bankruptcy filings of Chrysler LLC and General Motors Corp. Ford rose 28 cents, or 4.6 percent, to $6.41. GM shares no longer trade on the New York Stock Exchange and Chrysler isn't public.
Investors have been encouraged this spring by data suggesting the economy's slide is slowing, sending major stock indicators up 30 to 40 percent from the 12-year lows they hit in early March. The market has been able to look past unsettling but widely expected events such as the bankruptcies of Chrysler and GM, as well as dismal reports on the labor market.
Market analysts warn, however, that some pullback is likely in order for the market to build sustainable gains. Straight-line advances tend to worry stock watchers as signs of indiscriminate buying that could quickly evaporate at the first sign of trouble.
This week investors will be closely watching a stream of economic reports — particularly the monthly jobs data on Friday — for more signals on where to take the market next.
The report on pending home sales lifted home builder stocks. Beazer Homes USA Inc. rose 24 cents, or 9.1 percent, to $2.87, while Toll Brothers Inc. rose 73 cents, or 3.9 percent, to $19.53.
About three stocks rose for every two that fell on the NYSE, where volume came to a light 1.41 billion shares compared with 1.5 billion shares Monday.
The Russell 2000 index of smaller companies rose 5.30, or 1 percent, to 526.63.
Interest rates on long-term Treasurys fell after jumping back and approaching last week's highs on Monday. The yield on the 10-year Treasury note, which is used as a benchmark for home mortgages and other consumer loans, fell to 3.62 percent from 3.68 percent late Monday. Investors have been mindful in recent weeks of how rising yields could hamper an economic recovery by driving up interest rates.
The dollar was mixed against other major currencies, while gold prices rose.
Light, sweet crude fell 3 cents to settle at $68.55 on the New York Mercantile Exchange after finishing at its highest level of the year on Monday.
Overseas, Britain's FTSE 100 fell 0.7 percent, Germany's DAX index rose less than 0.1 percent, and France's CAC-40 slipped less than 0.1 percent. Japan's Nikkei stock average rose 0.3 percent.