Cash injection pushes up stocks

Stocks climbed Tuesday for the first time in three days as investors found solace in the European Central Bank’s injection of $500 billion into the financial system.

The bank’s massive move, which came a day after the Federal Reserve auctioned off $20 billion in 28-day loans to U.S. banks, supported the idea that the world’s financial authorities were working to revive demand in struggling areas of the credit market.

The European action is “important because liquidity and access to capital is one of the things that’s been driving the market for the last few months,” said Michael Gallipo, an investment manager at Citizens Funds in Portsmouth, N.H.

But few saw the end of the credit crunch just yet.

“The credit issues, the liquidity issues, are still there,” said Ryan Detrick, strategist at Schaeffer’s Investment Research. “There’s a dark cloud over the market.”

The stock market’s gains also were limited after the government said building permits fell to a 14-year low and a Goldman Sachs Group executive said he was “cautious about the near-term outlook” for the world’s largest securities firm.

The Dow Jones industrial average closed up 65.27 points, or 0.5%, to 13,232.47 after being up as much as 111 points and down as much as 74 points.

The blue-chip average had lost 4% in the week since the Fed’s decision Dec. 11 to lower interest rates by a quarter-point, less than many investors had hoped.

Broader stock indicators also bounced back Tuesday from a midday slump. The Standard & Poor’s 500 index rose 9.08 points, or 0.6%, to 1,454.98, and the Nasdaq composite index rose 21.57 points, or 0.8%, to 2,596.03.

The Russell 2,000 index of smaller-company stocks rose 15 points, or 2%, to 754.06.

Advancing issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange.

Yields on government bonds fell. The 10-year Treasury note slipped to 4.12% from 4.15% late Monday.

Goldman Sachs fell $7.12, or 3.4%, to $201.51 after releasing its quarterly earnings report, which showed a 2% profit gain but uneven results across the investment bank’s various units.

Best Buy rose 48 cents to $51.62 after the electronics retailer reported a 52% increase in quarterly profit but issued a forecast that fell short of analysts’ expectations.

The Commerce Department said housing starts and building permits fell last month compared with October, bolstering a belief that the economy would continue to feel the housing market’s drag in the new year. Starts fell 3.7% to the lowest level in more than 16 years and permits fell 1.5% to a 14-year low.

The dollar was mixed against other major currencies while gold prices advanced.

Crude oil futures fell 14 cents to $90.49 a barrel on the New York Mercantile Exchange.

Hess jumped $5.14, or 6.1%, to $89.83. A Friedman Billings analyst raised his 2008 crude oil price forecast by 33% to $80 a barrel and his “long-term” price estimate by 55% to $85 a barrel.

Utilities as a group climbed 1.5%, the steepest gain among 10 industries in the S&P; 500. Exelon, the largest U.S. operator of nuclear power plants, rose $2.71 to $85.55 after Merrill Lynch & Co. recommended the shares to investors seeking safety during an economic slowdown.

In other market highlights:

* General Motors gained 54 cents, or 2%, to $26.93. The company said it would begin offering buyouts to about 5,000 factory workers early next year as part of an effort to lower labor costs and return GM to profitability.

* Palm tumbled 66 cents, or 11%, to $5.27 in after-hours trading. The maker of the Treo e-mail phone forecast a wider-than-expected loss because of defections to the BlackBerry and iPhone. The stock is down 58% this year.

* Also in after-hours trading, Darden Restaurants sank $2.74, or 7.5%, to $33.60. The owner of the Red Lobster and Olive Garden chains posted earnings that trailed analysts’ estimates.

* Tuesday Morning plunged $1.75, or 27%, to $4.78 in regular trading after the housewares retailer lowered its fiscal 2008 earnings and revenue forecasts.

* H&R; Block surged $1.07, or 6.1%, to $18.67 after the tax preparer’s chief financial officer told an investor conference that the company had adequate liquidity.

* Glendale-based Dreamworks Animation jumped $2.14 to $25.09 after the studio late Monday said it would buy back as much as $150 million of its shares, equivalent to about 6% of its market capitalization.

* Waste Industries USA surged $6.46, or 22%, to $36.15. An investor group led by its founder and chairman is taking the garbage collection company private for $544 million, or $38 a share.

* Overseas, key stock indexes fell 0.3% in Japan and 0.1% in France. Shares rose 0.5% in Hong Kong and 0.3% in Germany, and edged up in Britain.