Solid news on factory orders and strong earnings from U.S. manufacturers highlighted the economy's growing momentum before the market opened. The Dow and broader indexes turned negative after weaker reports on home sales and future economic growth were released in the late morning.
The Dow and other indexes are still up sharply for the year, and the Dow is near its highest level since May 2008. Traders appear less afraid of spillover damage from the European debt crisis, and data on jobs and manufacturing have been consistently strong.
"With global risk off center stage and attention going back to the fundamentals, this market was ready to explode, which is exactly what it is doing," said Doug Cote, chief market strategist with ING Investment Management.
Before the market opened, the government reported that unemployment claims rose only modestly last week after a steep decline the week before. The long-term trend still indicates an improving job market.
Orders to factories for long-lasting manufactured goods increased in December for the second straight month, and a key measure of business investment rose solidly.
That strong demand was apparent in quarterly earnings reports from U.S. manufacturers. 3M stock rose 1.3 percent after its fourth-quarter profit beat Wall Street's estimates.
Caterpillar, the world's biggest heavy equipment maker, soared three percent, the most of the 30 companies in the Dow, after beating analysts' estimates last quarter. The company expects to do the same this year as global demand remains high.
Stocks traded broadly higher until mid-morning, when the government reported an unexpected drop in new home sales in December, capping the worst year for home sales on records dating to 1963. The decline underscored the housing market's continued drag on the economy.
A private gauge of future economic activity also grew more slowly than expected.
The Dow was down 16 points at 12,740 as of 2:45 p.m. Eastern time. It had traded up as much as 85 points early Thursday. 3M and Caterpillar led the gains.
AT&T fell 2.1 percent, tempering the Dow's rise, after its earnings missed Wall Street's forecasts. The company remains heavily dependent on Apple's iPhone, which it pays to subsidize, but recently lost its exclusive rights to sell the phone in the U.S.
The Dow is within reach of its post-financial crisis high of 12,810, reached in April 2011. The last time it closed higher than that was on May 20, 2008, when it settled at 12,826. The Dow's post-crisis high during the trading day was 12,928, reached in May 2011.
The Dow is up 4.5 percent so far this year. The S&P 500 and Nasdaq have gained even more.
The Dow would need to rise another 11 percent to get to its record high close of 14,164, reached on Oct. 9, 2007.
The Standard & Poor's 500 index fell 7 points to 1,318. It was dragged lower by volatile financial companies and telecommunications firms including AT&T. The Nasdaq composite index shed 13 points to 2,805.
Stocks had their highest close in eight months Wednesday after the Federal Reserve said it plans to keep interest rates extremely low until late 2014 to encourage lending and investment and support the economic recovery.
The announcement lifted investments across many markets and continents. Bond prices rose in the U.S. and Europe. So did commodities, the euro, emerging market currencies and European stocks.
The yield on the 10-year Treasury note fell to 1.93 percent from 1.99 percent late Wednesday. The prospect of more bond-buying by the Fed helped make Treasurys more attractive. A bond's yield falls as demand for it increases.
A strong bond auction by Italy also brightened Europe's outlook, signaling to investors that lenders believe Italy will not be dragged into the debt crisis. And Greece resumed talks with its lenders over writing off some of its crushing debt.
Benchmark indexes in France, England, Germany and Italy closed up one to two percent.
Among the other U.S. companies making big moves after reporting quarterly earnings:
- Time Warner Cable Inc. rose 7.1 percent after the company reported earnings that were far above analysts' estimates. The national cable TV provider also raised its dividend 17 percent to 56 cents per share and announced plans to buy back more of its own stock.
- United Continental Holdings, the parent company of United and Continental airlines, surged 7.2 percent. The company's fourth-quarter loss narrowed, its adjusted earnings were more than double what analysts had expected and the cost of integrating the two companies fell.
- Netflix soared 23.3 percent, the most of any stock in the S&P 500, after the video streaming and DVD-by-mail company reported a huge gain in customers and a bigger fourth-quarter profit than analysts had expected.
- Colgate-Palmolive rose 1.9 percent after saying it will raise prices in the U.S. for the first time in years to cover higher costs for materials. The company's profit declined last quarter, but core sales in emerging markets were much stronger.