The Dow rose on Tuesday after blue-chip component McDonald's posted stronger-than-expected restaurant sales, but the S&P 500 and Nasdaq were little changed after China raised interest rates.
The 25-basis-point increase was China's second increase in six weeks and meant to combat inflation. The move pressured energy shares on worry demand will be curbed. U.S. crude for March delivery fell 0.2 percent to $87.33 a barrel while the S&P energy sector <.GSPE> sank 0.9 percent.
But the market didn't react as negatively as it did to previous Chinese rate hikes. Stocks resumed their upward move that has taken the Dow and S&P to 2 1/2-year highs.
McDonald's Corp surged 2.9 percent to $75.57 as its January same-store sales beat expectations, helped by a rebound in European demand.
The market realizes that while the rate hike is important, corporate results like McDonald's are what's driving stock prices higher, said Dan Veru, chief investment officer at Fort Lee, New Jersey-based Palisade Capital Management LLC, which oversees $3.5 billion. Veru said McDonald's was a core holding of the fund.
The Dow Jones industrial average <.DJI> was up 39.47 points, or 0.32 percent, at 12,201.10. The Standard & Poor's 500 Index <.SPX> was up 1.74 points, or 0.13 percent, at 1,320.79. The Nasdaq Composite Index <.IXIC> was up 1.46 points, or 0.05 percent, at 2,785.45.
The S&P consumer discretionary index <.GSPD> was up 0.7 percent and was by far the top performing among S&P 500 sectors.
Merger activity continued for a second day with Kindred Healthcare Inc's planned acquisition of RehabCare Group Inc to create a post-acute healthcare services company.
Kindred Healthcare jumped 20 percent to $23.44 and RehabCare soared 43 percent to $36.34.
On the downside, Teva Pharmaceutical Industries' U.S.-listed shares fell 6.3 percent to $51.54 after the world's biggest maker of generic drugs reported results that fell short of forecasts.
Avon Products Inc posted a steeper-than-expected drop in quarterly profit. Shares of the cosmetics company fell 5.2 percent to $27.82.
(Editing by Kenneth Barry)