Investors expect that a sustained pullback in oil prices would give a crucial boost to the economy. Crude has retreated as oil investors have worried that high prices and a sluggish economy are reducing demand. The government reported Wednesday that domestic inventories increased last week as consumers curbed their energy use.

Oil is down more than $20 a barrel since hitting a record above $147 just weeks ago. A barrel of light, sweet crude fell $3.98 to settle at $124.44 a barrel on the New York Mercantile Exchange.

While oil again tugged at stocks as it has for months, investors also examined a raft of earnings reports that indicated not all corporate profits were suffering because of the slower economy. That left some investors more upbeat about the prospects for the overall economy. AT&T Inc., McDonald's Corp. and Pfizer Inc., all among the 30 stocks that make up the Dow Jones industrial average, weighed in with reports that generally pleased investors.

“Oil is a positive but I think bigger than that is the earnings news is not as catastrophic as people were thinking,” said Noman Ali, portfolio manager of U.S. equities for MFC Global Investment Management in Toronto. “Some of the bellwethers are reporting earnings that are better-than-expected. And outside of the financials things, aren't so bad.”

According to preliminary calculations, the Dow rose 29.88, or 0.26 percent, to 11,632.38 after rising nearly 100 points early in the session. On Tuesday, the blue chips gained 135 points.

Broader stock indicators also advanced. The Standard & Poor's 500 index rose 5.19, or 0.41 percent, to 1,282.19 and the technology-laden Nasdaq composite index rose 21.92, or 0.95 percent, to 2,325.88.

Advancing issues outnumbered decliners by about 5 to 3 on the New York Stock Exchange, where volume came to 1.72 billion shares compared with 1.57 billion shares traded Tuesday.

Bond prices slipped as some investors moved from the safety of government debt to stocks. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 4.12 percent from 4.10 percent from late Tuesday.

The dollar was mostly higher against other major currencies, while gold prices fell.

The stronger dollar also helped push oil lower. The drop in oil helped a range of sectors like airlines. Delta Air Lines Inc. rose 89 cents, or 12 percent, to $8.60, while Continental Airlines Inc. jumped $1.54, or 12 percent, to $14.80.

Energy companies lost ground as oil fell. Exxon Mobil Corp. fell $1.87, or 2.3 percent, to $80.99 and Chevron Corp. slid $2.98, or 3.5 percent, to $82.65.

Investors appeared unfazed by the Federal Reserve's Beige Book, which provides readings on the U.S. economy by region and indicated that business conditions have slowed in recent months as consumer spending has turned sluggish. The report arrives two weeks before policymakers' next meeting but seemed to hold few surprises for investors.

Investors instead appeared more focused on oil and corporate news.

AT&T rose $1.24, or 3.9 percent, to $33.06 after the company said quarterly profits rose amid a big spike in wireless subscribers that offset its shrinking landline business.

Pfizer, the world's biggest drug maker, said its second-quarter earnings more than doubled as restructuring charges declined and the weak dollar helped lift overseas revenue. The stock rose 72 cents, or 3.9 percent, to $19.07.

McDonald's credited strong overseas sales with driving the company's second-quarter profit. The stock fell 46 cents to $59.66.

Boeing Co. fell $2.54, or 3.7 percent, to $66.72 after reporting second-quarter earnings fell 19 percent due to a $248 million charge related to a defense program. The world's second-largest commercial airplane maker had already warned it would book the expense.

Washington Mutual Inc. fell $1.17, or 20 percent, to $4.65 after the nation's largest thrift reported a $3 billion loss due to increases in its loss reserves to cover souring loans in its mortgage portfolio.

Costco Wholesale Corp. warned that its fiscal fourth-quarter and full-year profits will fall short of Wall Street's expectations. The warehouse club operator expects higher energy costs to hurt its results. The stock fell $8.57, or 12 percent, to $63.43.

Fannie Mae and Freddie Mac advanced as the House planned to vote Wednesday on legislation that would tap the mortgage giants' profits to cover any losses from saving 400,000 homeowners from foreclosure. The measure would give the Treasury Department authority to extend the companies a temporary lifeline. Fannie Mae rose $1.59, or 12 percent, to $15, while Freddie Mac rose $1.10, or 11 percent, to $10.80.

Bill Stone, chief investment strategist for PNC Wealth Management, said some investors had been overly concerned about some financials and that some companies' quarterly reports had quelled some of the worst fears.

“They were pricing some of these companies seemingly for the end. And when you don't get the worst possible outcome you get at least a jump out of them,” he said.

MFC's Ali said that while the government's action to help Fannie Mae and Freddie Mac has reassured investors he remains cautious.

“Some of the biggest rallies happen in bear markets. The outlook for the market is still pretty negative,” he said, pointing to a general decline in earnings, a slowdown in international growth, rising prices and a weak dollar.

The Russell 2000 index of smaller companies rose 2.37, or 0.33 percent, to 719.19.

Overseas, Japan's Nikkei stock average rose 0.97 percent. Britain's FTSE 100 added 1.60 percent, Germany's DAX index rose 1.45 percent, and France's CAC-40 jumped 1.88 percent.

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