Wall Street rises after selloff, investors cautious

By Edward Krudy

NEW YORK (Reuters) – Wall Street bounced in lackluster trading on Tuesday, a day after the S&P 500 fell to it lowest in over two months, with a market downtrend seen intact as investors remained gloomy about the economy.

The S&P 500 has fallen 4.9 percent since a recent high at the start of May and closed Monday at its lowest level since March 18, having fallen through its April low. Some investors looked for further volatility and a possible move lower before equities stabilize.

“We did get oversold and we’re probably due for this bounce, but I don’t think it’s anything more than a bounce in a continued downtrend,” said Peter Boockvar, equity strategist at Miller Tabak & Co in New York.

The Dow Jones industrial average <.DJI> gained 61.38 points, or 0.51 percent, to 12,151.34. The Standard & Poor’s 500 Index <.SPX> added 7.83 points, or 0.61 percent, to 1,294.00. The Nasdaq Composite Index <.IXIC> rose 14.88 points, or 0.55 percent, to 2,717.44.

Bank stocks, heavily sold in recent weeks, were among the biggest gainers. Bank of America Corp rose 1.6 percent to $11.01, while the KBW bank index <.BKX> was up 1.1 percent.

All of the S&P’s sectors were positive, with strength in the consumer discretionary sector <.GSPD>, gaining 1 percent, also from a heavily oversold condition.

Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey, said light volume and lack of buyers could mean any bounce is short-lived.

“The problem for institutions on a day like today is the volume being light. Any concerted effort to raise funds (sell positions) could have a disproportionate impact on pricing as buyers will be on the thin side,” he wrote in a note to clients.

The declines in the market have left the S&P 500 up just 2.9 percent for the year so far.

International Paper Co launched a $3.3 billion unsolicited offer for rival Temple-Inland Inc . Temple-Inland shot up 41.5 percent to $29.74, while IP rose 2.1 percent to $30.25.

The dollar hit a record low against the Swiss franc and fell against a basket of currencies <.DXY>, helping to put a floor on commodity prices, after a Chinese official said the greenback would continue to weaken.

Commodity-linked shares gained, with Freeport McMoRan Copper & Gold Inc rising 1.1 percent to $50.38 and Alcoa Inc adding 2.4 percent to $16. The S&P’s materials sector <.GSPM> gained 1 percent.

Also helping the rebound, European Central Bank chief Jean-Claude Trichet said a restructuring of Greece’s public debt, which many in the market see as inevitable, is inappropriate as long as the government follows through on reforms.

Federal Reserve Chairman Ben Bernanke is due to speak on the U.S. economic outlook at a banking conference in Atlanta.

Fed officials have said recent data was a disappointment, with Eric Rosengren, president of the Boston Fed, suggested it could delay the Fed’s exit from its extremely easy monetary policy. Bernanke is set to start shortly before the market closes.