Dow up 47 despite weak retail sales

Stocks finished modestly higher today in another volatile session that saw both big gains and losses vanish in minutes.

The market leaders were retailers -- one of the most beaten-up groups in recent months. The gains came even as retail chains reported weak sales for January.

The Dow Jones industrials finished 47 points higher, or 0.4%, to 12,247. The Standard & Poor's 500 Index closed up 10 points, or 0.8%, to 1,337, and the Nasdaq Composite Index rose 13 points, 0.6%, to 2,292.

The positive finish was the first in four sessions. The Dow had fallen 510 points in the prior three sessions.

The blue chips had a roller coaster day. A 132-point gain at 2 p.m. became a 79-point loss by 3 p.m. And then the index came back one more time.

Retailers, especially Wal-Mart, offered investors an ugly picture of their sales, but their stocks had a nice rally. The Standard & Poor's Retail Index ($RLX.X) was up 3.7% to 404 on the day, still the best performer among 41 domestic indexes that Market Dispatches tracks.

Home Depot (HD, news, msgs) and Wal-Mart Stores (WMT, news, msgs) were the second- and third-best of the 30 Dow stocks today, up 2.7% to $28.40 and 2.1% to $49.84, respectively.

Family Dollar Stores (FDO, news, msgs) and Big Lots (BIG, news, msgs) were the second-and third-best performing S&P 500 stocks, up 11.7% to $20.31 and 10.8% to $16.80, respectively.

Retail stocks seemed to be resisting the downdraft that hit the market when an auction of 30-year Treasury bonds didn't go well, pushing interest rates higher. The yield on the 30-year bond jumped from 4.37% on Wednesday to 4.5% today.

The president of the Dallas Federal Reserve Bank said in a speech he's more concerned about inflation than the economy. From that, traders inferred that the Fed may not cut rates at its March 18 meeting.

But the market continues to be plagued by investors who are selling stocks into rallies, CNBC's Bob Pisani said this afternoon. That selling is limiting the potential for a longer-term rally and is responsible for much of the market's volatility.

The top Dow performer was JPMorgan Chase (JPM, news, msgs), up 3.2% to $45.11.

The best S&P performer was IntercontinentalExchange (ICE, news, msgs), which operates futures exchanges, up 12.5% to $130.39 on an analyst upgrade.

United Airlines parent UAL (UAUA, news, msgs) was up 5% to $39.55 on reports it's in early merger talks with Continental Airlines (CAL, news, msgs). Continental jumped 5.8% to $30.45.

Twenty of the 30 Dow stocks had gains today, along with 346 S&P 500 stocks and 73 Nasdaq-100 ($NDX.X) stocks.

Crude oil, meanwhile, rebounded 1.1% to $88.11 a barrel in New York today after falling to $87.14 on Wednesday. Chevron (CVX, news, msgs) moved up 1.6% to $78.74.

Why retail shares moved higher

So, why did retail stocks hold their own today? Many retail stocks are cheap -- close to ridiculously cheap, especially to "savvy investors, seasoned retail investors," Lawrence Creatura, a money manager in Rochester, N.Y., told Bloomberg News.

Take Wal-Mart, which said this morning that sales in January at stores open at least a year rose 0.5% from January 2007, below the consensus estimate of a 2% increase.

• Video: A vote for Wal-Mart, Macy's and Nordstrom

The retail giant blamed unfavorable weather and said gift-card redemptions were below expectations. It forecast February same-store sales to be unchanged from a year ago to up 2%.

Still, the stock is up 17% since a Sept. 10 low and is up 3.3% this year. The Dow is down about a touch under 8% for the year.

A lousy January: A good reason to buy

Wal-Mart was just one retail chain reporting lousy same-store sales today. The International Council of Shopping Centers was predicting that overall same-store sales would be flat or slightly down for January.

"It's an economic blizzard that seemed to be weakening demand," ICSC Chief Economist Michael Niemira told MarketWatch.com. "The story of recession seemed to be in every daily newspaper. It just starts to increase the worry level. As the uncertainty got worse, the consumers' unwillingness to spend seemed to get worse."

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"Weakness in the consumer is definitely there," Dana Telsey, chief research officer at Telsey Advisory Group, told CNBC this morning.

Retailers are going to have a much more challenging first quarter, Telsey added, with stores closing and restructuring plans announced. Wednesday, Macy's (M, news, msgs) said it was cutting 2,500 jobs and saw same-store sales fall 7.1% in January, worse than the 4% to 6% it had projected. Today, the stock was up 4.9% to $25.11.

Maybe so, but that did not stop investors from buying the shares.

J.C. Penney (JCP, news, msgs) shares jumped 8.5% to $47.44; its January sales were off 1.9%, compared with company guidance of a decline in the "mid-single digits."

Target (TGT, news, msgs) saw same-store sales fall 1.1%, worse than the expected 0.6% decline. For February, Target said it expects sales to be between down 1% and up 1%. But Target shares were up 6.1% to $54.10.

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Costco Wholesale (COST, news, msgs) reported a 7% increase in January same-store sales, above the 6.6% rise analysts had expected. Shares moved up 1.6% to $64.75.

High-end retailer Nordstrom (JWN, news, msgs) missed Wall Street's estimate of a 0.7% drop in January. The company said same-store sales fell 6.6%, with total sales down 20.3%, to $486.3 million.

And yet, shares were up 3.7% to $37.67.

Energy prices -- New York close

	Thur.	Wed.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$88.11	$87.14	$0.97	-3.97%	-8.20%
Heating oil (per gallon)	$2.4585	$2.4188	$0.0397	-3.00%	-7.21%
Natural gas (per million BTU)	$8.1020	$7.9940	$0.1080	0.35%	8.27%
Unleaded gasoline (per gallon)	$2.2678	$2.2399	$0.0279	-1.79%	-8.95%

Cisco voices caution

The market looked like it might have a weak open after Cisco Systems (CSCO, news, msgs) offered weak guidance in its second-quarter earnings report after Wednesday's close.

But it didn't happen. The major averages were off a little, sunk a bit further and then rallied. Even Cisco, which had tumbled more than 7% in after-hours trading Wednesday, closed up 0.7% to $23.25.

It's possible that the interviews Cisco CEO John Chambers held this morning reassured investors, who had dumped the stock last night. Cisco had said it expects just 10% sales growth for the current quarter -- below the company's long-term goal of 12% to 17% -- and added that customers, especially those in the U.S. and Europe, are increasingly cautious about the economy.

Cisco's earnings seemed to cheer Wall Street. The company earned $2.1 billion, or 33 cents per share, in its fiscal second quarter -- up from $1.9 billion, or 31 cents per share, in the same period a year ago. Pro-forma earnings were 38 cents per share, in line with analysts' expectations.

• Video: John Chambers on Cisco

Chambers blamed Cisco's weaker revenue forecast on a bad January, noting that the month was "the first time in many years" that the company has missed its forecast for the first month of the year.

Chambers this morning told CNBC that he wanted to tell shareholders what is going on at the networking company; he said that, despite the weak January, he still expects strong long-term growth.

"Tech is under pressure," American Technology Research analyst Mark McKechnie said to Bloomberg News. "The question is how long and how deep the issues are in the U.S. and Europe, and whether they go on to impact the rest of the world."

The CEO's current caution echoed comments he made in November, which sent a wave of worry throughout the tech sector. In a call to analysts after Cisco reported its fiscal first-quarter earnings on Nov. 7, Chambers said that the company's networking business could be "lumpy."

Pending home sales fall

The National Association of Realtors this morning said sales of previously owned homes fell 1.5% in December, as the housing market continues to slump.

The decline follows a revised 3% drop in November and is worse than the 1% decline economists had been expecting.

The only region in the country that saw gains was the Midwest, where pending home sales rose 3.4%. Sales fell 3.1% in the West, 3% in the South and 1.7% in the Northeast.

Bank of England cuts rates

The Bank of England has been slow to respond to the U.S. recession fears, as the bank has been concerned about the combination of rising inflation and slowing growth -- often called stagflation.

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But although inflation is still a worry for the United Kingdom, the BOE decided to lower interest rates to 5.25% from 5.5% in an effort to ease credit conditions. The bank's benchmark rate remains the highest among the Group of Seven nations, which include the U.S., France, Germany and Japan.

"The prospects for output growth abroad have deteriorated and the disruption to global financial markets has continued," the bank said in a statement. "In the United Kingdom, credit conditions for households and businesses are tightening."

The Bank of England highlighted its inflation concerns, however. "Given this outlook for inflation, some slowing of demand growth, by reducing the pressure on capacity, is likely to be necessary to return inflation to target in the medium term," the bank said.

Central banks often cut interest rates to help spark the economy, but lowering rates can weaken a currency, causing traders to transfer funds to assets where they can earn higher returns, The Wall Street Journal explained.

The BOE had cut interest rates in December for the first time since August 2005.

The European Central Bank left its key rate unchanged at 4% this morning.

Short hits from the markets -- 4 p.m.

	Thur.	Wed.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	2.100%	2.040%	0.060	12.30%	-33.12%
5-year Treasury note yield	2.775%	2.674%	0.101	-1.80%	-19.68%
10-year Treasury note yield	3.736%	3.614%	0.122	2.67%	-7.41%
30-year Treasury bond yield	4.500%	4.374%	0.126	3.35%	0.92%
Currencies
U.S. Dollar Index	77.120	76.300	0.820	2.44%	0.55%
British pound in dollars	$1.9429	$1.9623	-0.0194	-2.45%	-2.33%
Dollar in British pounds	£0.5147	£0.5096	0.0051	2.51%	2.39%
Euro in dollars	1.4484	1.4633	-0.0148	-2.59%	-0.90%
Dollar in euros	€ 0.6904	€ 0.6834	0.0070	2.66%	0.91%
Dollar in yen	¥107.49	¥106.38	1.11	1.01%	-3.90%
U.S. dollar in Canadian dollars	$0.991	$1.006	-$0.0032	-0.86%	-0.20%
Canadian dollar in U.S. dollars	$1.010	$0.994	$0.0040	0.89%	0.21%
Commodities
Gold	$910.00	$905.00	$5.00	-0.38%	8.59%
Copper	$3.4540	$3.3090	$0.15	5.53%	13.58%
Silver	$16.7750	$16.5500	$0.22	-0.56%	12.43%
Crude oil (NYMEX) (per barrel)	$88.11	$87.14	$0.97	-0.96%	-8.20%

MBIA raises capital to save rating

Shares of bond insurer MBIA (MBI, news, msgs) slipped 8 cents to $14.20 today after the company late Wednesday announced that it will sell $750 million worth of new shares to help maintain its AAA rating by the ratings companies.

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The announcement came after Fitch Ratings late Tuesday warned that MBIA's AAA rating was put on "Ratings Watch Negative," citing the likelihood of further losses in the U.S. subprime-related debt market and MBIA's "significant" exposure to those risky debt securities.

MBIA said that private-equity firm Warburg Pincus will backstop the offering by buying up to $750 million in convertible preferred stock. MBIA has already raised $1.5 billion in capital over the past three months.

MBIA and other bond insurers have been struggling to keep their AAA status as many of the bonds they insure have lost value on account of the mortgage-market mess.

By Charley Blaine and Elizabeth Strott