Signs that lawmakers are making moves to end a stalemate in Washington and avert a U.S. government debt default halted a slump on the stock market Wednesday.
President Barack Obama is making plans to talk with Republican lawmakers at the White House in the coming days as pressure builds on both sides to resolve their deadlock over the federal debt limit and the partial government shutdown before the U.S. Treasury's borrowing authority is exhausted next week.
The stock market's losses accelerated at the start of this week as the shutdown dragged on and both the White House and House Republicans appeared to be coming more entrenched in their positions. The Standard & Poor's 500 index has fallen about 4 percent since climbing to a record on Sept. 18.
"We were quite oversold," Alec Young, a global equity strategist at S&P Capital, said of the market's moderate recovery on Wednesday. "For this really to have any legs, though, we need to see signs of compromise in Washington."
The S&P 500 index gained 0.95 points, or 0.1 percent, to 1,656.40. The index lost 2 percent in the first two days of this week as concerns grew that politicians would fail to reach a deal before the government hits its debt ceiling on Oct. 17.
The Dow Jones industrial average rose 26.45 points, or 0.2 percent, to 14,802.98. The Nasdaq composite fell 17.06 points, or 0.5 percent, to 3,677.78.
The pace of companies reporting third-quarter earnings is also picking up this week, giving investors better insight into how corporate America is doing.
Yum Brands, the owner of KFC, Taco Bell and Pizza Hut, was the biggest decliner in the S&P 500 index after its earnings fell short of Wall Street's expectations. The discount retailer Family Dollar also slumped after giving a cautious earnings forecast for next year.
"It looks like there has been some disappointment in the early earnings already," said Colleen Supran, a principal at San Francisco-based Bingham, Osborn & Scarborough, an investment adviser and asset management company.
Yum Brands slumped $4.82, or 6.8 percent, to $66.48. Sales in China have grown weaker and the company cut its full-year earnings forecast after the closing bell Wednesday. Family Dollar fell 74 cents, or 1.1 percent, to $68.71.
In a move that many investors regarded as a positive for stocks, the White House nominated Federal Reserve Vice Chair Janet Yellen for the top position at the central bank.
Investors expect Yellen to continue the aggressive economic stimulus policies championed by the outgoing Chairman Ben Bernanke.
Yellen's appointment "does add certainty, in the absence of certainty for stocks," said Jim Russell, a regional investment director at U.S. Bank. "It perhaps keeps a little bit of a safety net under equities for the near, or intermittent, term."
The Federal Reserve is buying $85 billion of bonds a month to hold down long-term interest rates and bolster the economy. The central bank's stimulus has been a crucial support for a stock market rally that began more than four years ago.
Investors also got more insight into the Fed's thinking Wednesday after the central bank published minutes from its September meeting Wednesday.
Nearly every member of the Federal Reserve thought the central bank should see more economic data before slowing its bond purchases. But worries about whether a delay would confuse markets made the decision a close call. Many expected policy maker to start cutting stimulus.
In government bond trading, the yield on the 10-year Treasury note rose to 2.67 percent from 2.63 percent.
Much of the concern about a potential default by the government bond has been concentrated in short-term government securities known as T-bills.
Portfolio managers at Fidelity Investments have been selling their short-term government debt holdings over the last couple of weeks. The nation's largest manager of money market mutual funds said Wednesday that it no longer holds any U.S. government debt that comes due around the time the nation could hit its borrowing limit.
In commodities trading, trading the price of oil dropped $1.88, or 1.8 percent, to $101.61 a barrel. Gold slumped $17.40, or 1.3 percent, to $1,307.20 an ounce.
The dollar rose against the euro and Japanese yen.
Among other stocks making big moves:
— Jos. A. Bank Clothiers rose $2.67, or 6.4 percent, to $44.33 after saying it wants to buy rival retailer Men's Wearhouse for $2.3 billion. Men's Wearhouse soared $9.79, or 28 percent, to $45.03.
— Alcoa rose 16 cents, or 2 percent, to $8.10 after the aluminum maker posted a slim third-quarter profit late Wednesday, reversing a year-ago loss.
AP Markets Writer Ken Sweet contributed to this report.