Investors sidestepped some of their doubts about the strength of an economic recovery and pushed into energy, industrial and materials stocks as commodity prices rose.
Stocks zigzagged in a tight range Tuesday as the day's news on corporate dealmaking failed to extend a strong advance from Monday. It wasn't until the gains in commodity prices that stocks began to pare early losses.
Investors drew some comfort from billionaire investor Warren Buffett's decision to pay $100 a share for Burlington Northern Santa Fe in a deal valuing the railroad at $34 billion.
Meanwhile, tool maker Stanley Works agreed to acquire Black & Decker Corp. for $3.46 billion in stock.
Commodities rose broadly and gold jumped to a new high after India's central bank bought $6.7 billion worth of gold from the International Monetary Fund.
Even with the gains in commodities, traders remain on edge about unemployment and the overall strength of an economic recovery.
Health care products maker Johnson & Johnson said it would cut up to 7 percent of its global work force and streamline its business structure to save up to $900 million next year.
Investors were unnerved by further efforts to restructure two of the U.K.'s largest banks. The Royal Bank of Scotland got a $41 billion infusion from the government, while Lloyds said it was looking to raise about $34 billion through a share issuance.
Traders have been uneasy in recent weeks, wary about whether the economic recovery can maintain the same pace once government stimulus measures are removed. That uncertainty has led to wild swings in the market. The Dow Jones industrial average has risen or fallen more than 100 points in six of the last eight trading days, the most volatility since March.
Thomas Ruggie, president of Ruggie Wealth Management in Tavares, Fla., said investors are worried that the stock market has been getting overheated so they're not moving into stocks even when there is upbeat news like merger activity.
"People are still scared," he said. "People are treading very, very lightly."
In late afternoon trading, the Dow fell 48.97, or 0.5 percent, to 9,740.47, after being down as much as 86 points. The Dow rose 77 points Monday.
The broader Standard & Poor's 500 index rose 0.62, or 0.1 percent, to 1,043.50. The Nasdaq composite index rose 0.74, or less than 0.1 percent, to 2,049.94.
Analysts expect trading to be choppy throughout the week, as the market readies for a frenzy of a series of economic reports that culminates Friday with the government's employment report for October.
Stocks vacillated Monday after a stronger-than-expected reading on manufacturing activity and a surprise profit from Ford Motor Co. All the major indexes ended up with gains of less than 1 percent.
"We're seeing a natural ebb and flow of risk appetite," said Kevin Gardiner, head of investment strategy for Europe, Middle East and Africa at
Barclays Wealth.
Investors are watching the Federal Reserve, which on Tuesday began a two-day policy meeting on interest rates. Though the central bank isn't expected to take any action on interest rates, investors will be watching for what the Fed has to say about the state of the economy when it issues a statement Wednesday at the conclusion of the meeting. The Fed's benchmark interest rate currently stands at a record low of essentially zero.
A rise in factory orders wasn't enough to boost sentiment. The Commerce Department said orders to U.S. factories rebounded in September after dropping in August. Orders rose 0.9 percent in September amid increases in orders for autos, heavy machinery and military aircraft. Analysts had expected an increase of 0.8 percent, according to Thomson Reuters.
Bond prices fell, pushing yields higher. The yield on the benchmark 10-year Treasury note rose to 3.48 percent from 3.42 percent late Monday.
The dollar was mixed against other major currencies.
Crude oil rose $1.14 to $79.27 a barrel on the New York Mercantile Exchange, while gold surged to a new high of $1,082.20 an ounce.
Shares of Burlington Northern jumped $21.50, or 21.5 percent, to $97.57 after Buffett's move.
That pulled other railroads higher. CSX Corp. rose $2.76, or 6.4 percent, to $45.60, while Norfolk Southern Corp. advanced $2.52, or 5.4 percent, to $49.15.
Black & Decker jumped $11.85, or 25 percent, to $59.19, while Stanley Works rose $2.63, or 5.8 percent, to $47.78.
Johnson & Johnson fell 44 cents to $59.05.
Royal Bank of Scotland fell 65 cents, or 5.1 percent, to $12, while Lloyds Banking Group PLC rose 30 cents, or 5.5 percent, to $5.74.
The Russell 2000 index of smaller companies rose 4.60, or 0.8 percent, to 567.00.
Advancing stocks narrowly outpaced those that fell on the
New York Stock Exchange, where volume came to 898.5 million shares compared with 1.08 billion traded at the same point Monday.
Overseas, Britain's FTSE 100 fell 1.3 percent, Germany's DAX index fell 1.4 percent, and France's CAC-40 dropped 1.5 percent. Markets in Japan were closed for a holiday.
