Wall Street reversed early losses to close higher Tuesday as investors monitored the movements of record high oil prices but still laid bets that the economy and companies were in recovery mode.
Crude oil climbed to a record of almost $123 a barrel on the New York Mercantile Exchange as traders, who have nearly doubled the price of oil over the last year, reacted to the weakening U.S. dollar, supply threats and a note from Goldman Sachs predicting that oil could reach $200 a barrel.
"I think, overall, the strength in stocks right now is on fairly firm footing," JPMorgan equities analyst Thomas J. Lee said. "In some ways, first-quarter earnings are yesterday's news."
In recent weeks, stronger-than-expected results from companies outside the battered financial and housing sectors helped the stock market rebound to levels not seen since early January.
Economic data have been better than expected -- particularly Friday's employment report and Monday's data on the service sector -- and credit markets keep showing a bigger appetite for risk.
The Dow Jones industrial average rose 51.29 points, or 0.4%, to 13,020.83.
Broader stock indicators also rebounded. The Standard & Poor's 500 index rose 10.77 points, or 0.8%, to 1,418.26, and the Nasdaq composite index rose 19.19 points, or 0.8%, to 2,483.31.
Bond prices pared earlier gains. The yield on the benchmark 10-year Treasury note, which moves opposite its price, was at 3.92% late Tuesday, up from 3.87% on Monday.
Oil rose $1.87 to close at $121.84. Gold climbed $3.70 to $876. The dollar fell against most major global currencies, with the euro gaining 0.003 to $1.553 against the dollar.
A new Goldman Sachs prediction that oil prices could rise to $150 to $200 a barrel within two years seemed to motivate much of the buying.
The Energy Department raised its oil and gasoline price forecasts, but also predicted that high prices would reduce demand more than previously thought. The agency predicted oil prices would average $110 a barrel this year, up $9 from last month's forecast.
Oil prices have nearly doubled from about $62 a barrel a year ago, which Goldman analyst Arjun Murti sees as a sign the world is in the midst of a "super spike" in oil prices.
But Tim Evans, an analyst at Citigroup Inc., countered Goldman's analysis with a note predicting that crude prices could as easily fall to $40 a barrel as rise to $200 over the next two years because supplies are, as he put it, comfortable.
Ryan Detrick, senior technical strategist at Schaeffer's Investment Research, said it was a good sign that stock traders started buying again when the S&P; 500 briefly dipped below the technically significant 1,400 mark.
"We had some negative news this morning, and we've shaken it off. It's encouraging," Detrick said.
Huge quarterly losses from three major players in the financial and home-building industries initially sparked some stock selling Tuesday, but those dips were soon met by bargain hunters betting that those sectors were a good buy, given their low prices.
Fannie Mae reported a larger-than-expected first-quarter loss of $2.2 billion, and said it planned to lower its dividend and raise $6 billion in additional capital. But it also estimated its market share increased to about 50% of the new single-family home mortgage-related securities issued. Fannie Mae shares rebounded to rise $2.52, or 8.9%, to $30.81.
Home builder D.R. Horton reported a quarterly loss of $1.3 billion and halved its dividend to 7.5 cents a share. Its shares rose 88 cents, or 5.5%, to $16.85.
UBS reported a loss of nearly $11 billion and said it was reducing its workforce by about 7%. UBS shares dipped 54 cents to $33.77.
Meanwhile, Wachovia said it was nearly doubling its previously reported loss for the first quarter to $708 million after reviewing its portfolio of bank-owned life insurance. Yet shares rose 30 cents to $30.08.
After the closing bell, Walt Disney posted a higher fiscal second-quarter profit on strong theme park attendance. Shares closed up 44 cents at $33.73 in the regular session, and moved higher in later electronic trading.
Cisco Systems said fiscal third-quarter profit declined, but the networking equipment maker's adjusted earnings and revenue topped Wall Street projections. Shares rose 5 cents to close at $26.33 in the regular session, then tacked on 2% more in after-hours trading.
The Russell 2,000 index of smaller companies rose 5.44 points, or 0.8%, to 729.79.
Overseas, Japan's stock market was closed for a holiday. In Europe, Britain's FTSE 100 index finished flat, Germany's DAX index fell 0.5%, and France's CAC-40 fell 0.4%.