Stocks struggle on earnings woes

Stocks were mixed Tuesday as questions about Citigroup's future and Alcoa's big quarterly loss exacerbated worries about the weak corporate profit environment.

The Dow Jones industrial average (INDU) lost 0.3%, closing lower for the fifth consecutive session. The Standard & Poor's 500 (SPX) index added 0.2%. The Nasdaq composite (COMP) gained 0.5%.

Stocks had swayed on both sides of unchanged through the afternoon, with weakness in banks and Alcoa tempering strength in technology.

But Citigroup (C, Fortune 500) managed a late-session rally after the company confirmed it was in talks with Morgan Stanley (MS, Fortune 500) to sell part of its brokerage business, as had been rumored. After the close, Citigroup confirmed that it is selling 51% of its Smith Barney unit to Morgan.

The onslaught of negative news in the new year has caused investors to step back after an end-of-2008 rally, said Gary Webb, chief executive at Webb Financial Group.

"There's just nothing out there right now that looks promising, between the corporate news and the economic news," Webb said.

"Everyone knows things are going to be bad for a while, because we've all been told that so many times," he said. "But it still doesn't seem to be fully priced into the market."

After hitting the most recent bear-market lows in late November, stocks rallied more than 20% through the first session of the year. But since then, stocks have been slipping again.

The rally was driven mostly by short-covering, said Todd Salamone, director of trading at Schaeffer's Investment Research. Short-covering is when investors who have sold stocks short to take advantage of falling prices have to buy them back as prices start to rise.

"As that rally took place, investors got more comfortable with the price action and the only fear was of missing the rally," Salamone said. "But what that did is put the market in a place where it is less able to deal with all the negative headlines we're seeing now."

On Wednesday, the government releases its December retail sales report and the November reading on business inventories. The weekly energy supply report is also due in the morning, while the afternoon brings the release of the Fed's semi-annual "beige book" reading on the economy.

Company news: Alcoa (AA, Fortune 500) started off the fourth-quarter reporting period on a down note Monday. The aluminum maker lost 28 cents per share in the quarter, versus a profit of 36 cents per share a year ago. Analysts expected Alcoa to lose 10 cents per share on average, according to a Briefing.com survey. The company also reported a bigger-than-expected rise in revenue.

Last week, Alcoa warned that it will lay off 13% of its workforce as a means of cutting costs.

Fourth-quarter results are expected to be weak amid the ongoing recession. Intel (INTC, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) are among the companies due to report later this week.

Yahoo (YHOO, Fortune 500) announced that it has hired Carol Bartz, a longtime technology executive, as its new CEO.

In other corporate news, drugmaker Pfizer (PFE, Fortune 500) said it is cutting up to 800 scientist jobs. Barclays (BCS) confirmed it was going to lay off some employees, but would not give a number. Earlier reports speculated the bank could cut as many as 2,000 jobs.

Market breadth was positive. On the New York Stock Exchange, winners beat losers eight to seven on volume of nearly 1.31 billion shares. On the Nasdaq, advancers topped decliners by five to four on volume of 2.01 billion shares.

Economy: The U.S. federal budget deficit grew by $83.6 billion in December, the government said Tuesday afternoon, versus forecasts for $83 billion. That brings the total deficit for the first three month of fiscal 2009 to $485.2 billion, more than the deficit for all of 2008.

The November trade gap plunged to a five-year low as the recession cut into the demand for oil and imports from China. Exports fell too, on waning demand for American-made farm products and autos. The Commerce Department said the trade gap narrowed to $40.4 billion from $56.7 billion in October.

Speaking in London Tuesday, Federal Reserve Chairman Ben Bernanke said that the almost $800 billion stimulus plan being proposed by President-elect Barack Obama could provide a big boost to the economy. However, he also said additional bank bailouts may be needed.

Confirmation hearings took place Tuesday on Capitol Hill for various Obama nominees for the cabinet and top White House positions, including Sen. Hillary Clinton, who has been nominated for Secretary of State.

The House Financial Services Committee held a hearing on the Treasury's Troubled Asset Relief Program (TARP) Tuesday. On Monday, Obama asked Congress to release the remaining $350 billion in TARP money. Regulators echoed that request Tuesday and talked about different ways they might use the funds to better help homeowners and other consumers.

Bonds: Treasury prices rose, lowering the yield on the benchmark 10-year note to 2.29% from 2.30% Monday. Treasury prices and yields move in opposite directions. Yields on the 2-year, 10-year and 30-year Treasurys all hit record lows last month.

Lending rates improved. The 3-month Libor rate fell to 1.09% from 1.16% Monday, according to the British Banker's Association. Overnight Libor held steady at 0.10%. Libor is a key bank lending rate.

Other markets: In global trading, Asian and European markets ended lower.

The dollar gained versus the euro and yen.

U.S. light crude oil for February delivery fell 19 cents to settle at $37.78 a barrel on the New York Mercantile Exchange.

COMEX gold for February delivery down 30 cents to settle at $820.70 an ounce.

Gasoline prices held steady at a national average of $1.79 a gallon, according to a survey of credit-card swipes released Tuesday by motorist group AAA.