Stocks try to keep it positive

NEW YORK (CNNMoney.com) -- Stocks clung to modest gains Tuesday afternoon as investors welcomed reports that suggested lower wage inflation and surprising strength in the service sector of the economy.

But a big drop in factory orders, higher Treasury bond yields and fluctuating oil prices kept a lid on the market's gains.

The Dow Jones industrial average (up 33.73 to 12,317.58, Charts) rose about 0.2 percent with about 2 hours left in the session. The broader Standard & Poor's 500 (up 3.69 to 1,412.81, Charts) index added roughly 0.3 percent after closing at a six-year high on Monday.

The tech-fueled Nasdaq (up 3.09 to 2,451.48, Charts) composite was modestly higher.

The major gauges vacillated between unchanged and modest gains through the morning as investors tried to discern broader indications in the day's early economic numbers.

"We've got mixed economic news, although it's probably more positive than negative," said Art Hogan, chief market analyst at Jefferies & Co., referring to reports showing a drop in unit labor costs, which relieved some inflation worries, and a read that showed strong growth in the services sector, alleviating some concerns about a slowdown in manufacturing.

The weak read on factory orders, though, had some investors concerned.

U.S. light crude oil prices for January delivery rose 41 cents to $62.85 a barrel on the New York Mercantile Exchange in a volatile session. Prices rose in early trading then tumbled before midday, only to rebound in the afternoon.

Stocks rallied Monday thanks to a slew of merger news and a slump in oil prices - a welcome development for investors a bit skittish after last week's selloff that came on conflicting signs about the economy and a rally in oil prices.

Factory orders fell 4.7 percent in October, after rising a downwardly revised 1.7 percent in September. Economists surveyed by Briefing.com thought orders would fall 4 percent in the month.

The Institute for Supply Management's service sector index rose to 58.9 in November from 57.1 in October. Economists thought it would fall to 55.5. A reading above 50 points to growth in the sector.

An earlier report showed that third-quarter productivity rose 0.2 percent from an initial read of unchanged, missing economists' forecasts for a rise of 0.5 percent.

Unit labor costs, the report's inflation component, rose 2.3 percent from the second quarter, down from the 3.8 percent rise initially reported. That decline took a little edge off concerns about wage-based inflation.

Among stock movers, Toll Brothers (up $1.03 to $32.94, Charts) rallied after reporting a sharp drop in fiscal fourth-quarter earnings that nonetheless topped analysts' estimates. The luxury homebuilder forecast a big drop in fiscal 2007 earnings as well, but said that the big slump in the housing sector could be nearing a bottom. (Full story).

That boosted D.R. Horton (up $0.55 to $26.84, Charts), Hovnanian (up $1.46 to $37.61, Charts), Lennar (up $1.51 to $53.71, Charts) and other homebuilders, lifting the Philadelphia Housing (up $4.92 to $235.55, Charts) sector index by 1.8 percent.

Grocery chain Kroger (up $1.06 to $23.39, Charts) jumped 4.6 percent in unusually active New York Stock Exchange trading after posting higher quarterly earnings that beat estimates and boosted its 2006 earnings outlook.

Coca-Cola (up $1.07 to $47.90, Charts) rose after Merrill Lynch boosted its 2007 and 2008 earnings forecasts on the stock, reflecting what it said was the company's improving fundamentals and potential attractiveness as a defensive play in a slowing economy.

Fellow Dow stock Merck (up $0.80 to $45.50, Charts) rose on positive study results for its combination diabetes treatment.

Market breadth was positive. On the New York Stock Exchange, winners topped losers three to two on volume of almost 1 billion shares. On the Nasdaq, advancers topped decliners by a narrow margin on volume of 1.37 billion shares.

Treasury prices slipped, raising the yield on the benchmark 10-year note to 4.44 percent from 4.42 percent late Monday. Bond prices and yields move in opposite directions.

In currency trading, the dollar gained versus the euro and trimmed losses versus the yen.

COMEX gold fell $3.10 to $647.80 an ounce.

Santa has left the building

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