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Stocks close higher amid gains in oil prices

The Dow rose 65 points, and consumer staples and health care drove the S&P 500 up more than 6 points

By Abby Schultz and JeeYeon Park / May 12, 2011

Specialist Ned Zelles, center, works at his post on the floor of the New York Stock Exchange Thursday, May 12, 2011.

Richard Drew / AP


By Abby Schultz and JeeYeon Park,

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Stocks closed modestly higher on Wednesday, cutting in half the losses sustained Wednesday when a commodity rout roiled global markets.
The Dow Jones Industrial Average rose 65.89 points, or 0.5 percent, to close at 12,695.92, following a 1 percent decline in the previous session.

Cisco was the biggest laggard on the blue-chip index throughout the session after the tech bellwether warned that it would perform worse than analysts had expected in the current quarter. Shares of the networking giant tumbled to the bottom of the S&P 500, and at least five brokerages cut their price targets on the firm.

The S&P 500 rose 6.57 points, or 0.5 percent, to close at 1,348.65, while the tech-heavy Nasdaq rose 17.98 points, or 0.6 percent, to close at 2,863.04. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell to nearly 16.

Among key S&P 500 sectors, consumer staples and health care gained, while financials fell.

It's difficult to read too much into the fact commodities and stocks have moved in the same direction the last two sessions, according to Jeremy Zirin, chief U.S. equity strategist at UBS Wealth Management.

"Commodities have a inconsistent relationship with stocks over time," Zirin said. "They move together if it’s demand driven, and if they rise too far too quickly, and (commodity prices) start to crimp demand, then you’ll see risk assets start to sell off."

When commodities and stocks do move together, it's usually out of a concern the economy is experiencing "demand destruction," meaning commodities like oil are in less demand, which can be a sign of a slowing economy. On Wednesday, the market learned industrial activity in China was slowing, and inventories of crude oil and gasoline supplies in the U.S. were growing, two signals of slowing economic demand.

But, Zirin added, the reason for Wednesday's fall in energy and oil prices could also be simply some of the froth coming out of those sectors.

Others viewed the slide in stocks on Wednesday as a "risk off" trade, said Yu-Dee Chang, chief trader and principal of ACE Investment Strategists.

But Chang, noted, the stock market wasn't as "emotional" as the rest of the "risk on" assets, as the U.S. market fell only about 1 percent amid much steeper losses among precious metals and oil.