Shares of Texas Instruments Inc jumped 6.3 percent to $21.02 after the company raised its quarterly earnings and revenue targets, signaling improving demand in the chip market.
The PHLX semiconductor index <.SOXX> climbed 4.5 percent.
The guidance from Texas Instruments basically follows along with what Intel said mid-quarter that basically that there is a bottom forming and some first starts of improvement in the chip cycle, said Fred Dickson, market strategist and director of retail research at D.A. Davidson & Co in Lake Oswego, Oregon.
That implies orders for tech equipment are starting to show early signs of picking up.
Stocks initially moved higher after the Treasury Department said 10 big banks will pay back $68 billion received under the Troubled Asset Relief Program, or TARP, to the government. But the market quickly fell back on concerns that the money could be put to better use by making loans to businesses and consumers, which would boost the economy.
These banks want to pay back the TARP money almost immediately. What does that do to their balance sheet and their loaning capability? said Carl Birkelbach, chairman and chief executive of Birkelbach Investment Securities in Chicago.
If they were more concerned about the public, they would keep the cash and start loaning out money.
The Dow Jones industrial average <.DJI> dropped 1.43 points, or 0.02 percent, to 8,763.06. The Standard & Poor's 500 Index <.SPX> gained 3.29 points, or 0.35 percent, to 942.43. The Nasdaq Composite Index <.IXIC> climbed 17.73 points, or 0.96 percent, to 1,860.13.
Energy stocks also moved higher as U.S. crude oil futures ended above $70 a barrel for the first time in seven months, on a weaker dollar and a government forecast of higher demand in 2009.
The PHLX Oil Service Sector index <.OSX> rose 2.2 percent.
An auction of three-year Treasury notes in the early afternoon was met with solid demand, easing concerns that an oversupply of government debt could push interest rates still higher and increase the cost of borrowing to consumers and businesses.
However, those worries may resurface with the auction of 10-year notes and 30-year bonds later in the week.
General Electric Co , which makes engines for planes, said it expects orders this year to fall by 50 percent, knocking down shares of plane maker Boeing Co and United Technologies Corp , also a maker of plane engines.
Boeing shares fell 0.9 percent to $52.35, while United Technologies shares slid 1.7 percent to $55.52 and were among the top drags on the Dow.
In contrast, shares of conglomerate GE, a Dow component, inched up just 1 penny, or 0.07 percent, to $13.57.
The S&P 500 <.SPX> has rallied 39.3 percent since hitting a 12-year closing low on March 9, leading analysts to speculate a correction was ahead, although recent dips have been brief.
Trading volume was low on the New York Stock Exchange, with about 1.06 billion shares changing hands, below last year's estimated daily average of 1.49 billion, while on Nasdaq, about 2.16 billion shares traded, below last year's daily average of 2.28 billion.
Advancing stocks outnumbered declining ones on the NYSE by 1,812 to 1,191 while on the Nasdaq, advancers beat decliners by 1,590 to 1,052.
(Reporting by Chuck Mikolajczak; Editing by Jan Paschal)