U.S. and European stocks went their separate ways Tuesday, as U.S. investors largely looked past steep sell-offs in European markets following a vote in Italy Monday that points to political deadlock.
The Dow Jones industrial average rebounded back above 13,900 in the first hour of trading and then lost a bit of steam. In afternoon trading, the benchmark was up 0.7%. The Standard & Poor's 500 index was up 0.4% after an early-session surge. The tech-laden Nasdaq composite index, which had been up 0.5%, was up 0.1%. All three indexes posted sharp declines in the final 10 minutes of trading Monday.
Earlier in the trading session Tuesday, U.S. stocks were boosted by fourth-quarter earnings reports from Macy's and Home Depot that topped Wall Street forecasts. Home Depot shares were up nearly 6% in early trading, leading the Dow higher. Macy's shares were more than 3.4% higher.
Investors also are digesting economic reports out Tuesday that gave positive signs on the housing market and consumer confidence. In the mix: Federal Reserve Chairman Ben Bernanke giving his semi-annual report on the state of the economy to a congressional committee on Capitol Hill about the central bank's efforts to spark the economy.
"We had real good economic numbers today. The housing market not faltering, but picking up steam," says Peter Cardillo of Rockwell Global Capital. "The market is coming to realize that perhaps the Italian election is not as negative as perception may have you believe. If you have gridlock (in Italy), it might keep the austerity program in place because you have the votes to undo it."
In the tech arena, Groupon's stock is up. Investors are waiting for fourth-quarter earnings figures from the daily deal online company.
STOCKS: Get real-time quotes free with our Portfolio Tracker
Tuesday's market bounce might partially comfort traders who feared that the market's recent weakness could be a sign that stocks could be in for a more serious correction. After a strong rally this year, markets are vulnerable to a pullback as government faces sequestration, which could trigger large and automatic budget cuts.
The yield on the 10-year Treasury bond has fallen sharply in recent days as investors have abandoned stocks in favor of safer investments. Prices, which move inversely to the yield and reflect demand, have surged. On Tuesday, the yield was at a 2013 low of 1.64%. On Feb. 19, the yield was at a 2013 high of 2.03%.
Crude oil prices have fallen quite a bit the past few trading sessions. As recently as Feb. 20, benchmark crude for April delivery was trading at $97.46 a barrel. On Tuesday, the contract was down 81 cents at $92.30 per barrel in electronic trading on the New York Mercantile Exchange.
In Europe, the focus remained on the political gridlock -- the primary outcome of elections Monday for a new prime minister in Italy, one of the hardest-hit economies in the debt-plagued eurozone.
The Italy-focused FTSE MIB index finished down 4.9% at 15,552.20. Britain's FTSE 100 ended down 1.3% at 6,270.44. Germany's DAX 30 index closed down 2.3% at 7,597.11, and France's CAC 40 index ended down 2.7% to 3,621.92.
Analysts are divided on whether Italy's post-election political paralysis will continue to spook global financial markets. Former Premier Silvio Berlusconi, whose strong showing defied pro-Europe pundits who thought he was politically finished, insists a government can be formed in the eurozone's third-largest economy.
The conservative leader said Tuesday that Italians should ignore the "crazy" markets. His center-left rivals won Parliament's lower house after votes were counted Monday. But they failed to win an absolute majority in the upper house.
In Asia, Japan's Nikkei 225 index closed down 2.3% to 11,398.81. China's SSE index finished down 1.4% at 2,293.34, while the Hang Sang index in Hong Kong ended Tuesday down 1.3% at 22,519.69.
In currency trading, the euro was essentially flat against the dollar at 1.305, while the dollar fell 0.5% against the Japanese yen to 91.72.
The price of gold jumped $25 to $1,611.60 an ounce, an increase of 1.6% on Tuesday.
Contributing: USA TODAY's Kim Hjelmgaard in London, The Associated Press.