Stocks Finish with Small Gains

The market extended its winning streak into a seventh session, paced by strength in Caterpillar and energy names

U.S. stocks closed mostly higher Tuesday, overcoming earlier profit taking to extend a winning streak into a seventh session.

Better-than-expected second-quarter earnings at Caterpillar (CAT) and strength in Chevron (CVX) and Exxon Mobil (XOM) amid firmer oil prices lifted the Dow industrials.

The broader market -- and Treasuries -- benefited from Fed Chairman Ben Bernanke's comments in testimony before a House panel that limited inflation pressures should help keep interest rates low for an "extended period."

On Tuesday, the 30-stock Dow Jones industrial average finished higher by 67.79 points, or 0.77%, at 8,915.94. The broad Standard & Poor's 500-stock index added 3.45 points, or 0.36%, to 954.58. The tech-heavy Nasdaq composite index gained 6.91 points, or 0.36%, to 1,916.20.

The dollar index and gold futures were flat.

The market got an early boost from some better than expected earnings reports from Caterpillar, Merck (MRK), and DuPont (DD), boosting those stocks.

Recent earnings reports have been much better than expected, making some investors more willing to take risks, says S&P MarketScope.

Yahoo (YHOO) rose after announcing plans to move ahead earlier with a new home page.

Bernanke's prepared testimony was cautiously optimistic, as expected, according to Action Economics.. He indicated there are some "tentative signs of stabilization" in the economy, but said financial conditions remain "stressed. He added banks still face "significant risk of losses." On the exit strategy, he is "confident" that the Fed has th tools needed to achieve its mandate of growth and price stability. Bernanke did reiterate that the Fed would keep rates "exceptionally low" for an extended period. But, the Fed will start to tighten policy once the labor market improves. Meanwhile, the Fed chief also urged Congress to take "prompt" action on reining in the budget deficit.

Bernanke detailed "The Fed's Exit Strategy" in a Wall Street Journal opinion piece ahead of his semi-annual report to Congress, but he simultaneously reaffirmed easy policy for now. As he stated, "My colleagues and I believe that accommodative policies will likely be warranted for an extended period. At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road."

Bernanke said, "We are confident we have the necessary tools to withdraw policy accommodation, when that becomes appropriate, in a smooth and timely manner." Bernanke offered four alternatives to tighten policy when the time comes, including reducing reserves by selling part of its long-term holdings into the open market.

He consistently underscored, however, that now is not the time to tighten policy, reducing the risk of catching the markets unawares in his semi-annual testimony before the House later, notes Action Economics.

The Journal reports Bernanke strongly opposes the proposal to audit the Fed, calling it "self-defeating and dangerous." The risk: If investors see the Fed facing new political oversight, they will doubt its ability to take unpopular steps to fight inflation -- one of the Fed's top jobs. Fearing inflation, bond investors will push interest rates up, hurting the weak economy. Bernanke has plenty of support -- 43 of 46 private economists surveyed by WSJ.com say he should be reappointed.

In economic news Tuesday, the International Council of Shopping Centers and Goldman Sachs chain store index rose 0.5% in the week ended July 18 after falling 0.9% the week before. On a year-over-year basis, sales fell 0.3% after falling 0.7% the week before.

Business Exchange

Track and share business topics across the Web.