Wall Street stocks rose slightly on Tuesday but lingering risk aversion tied to Europe's debt crisis sent Italy's bond yields back into a perceived danger zone, capping gains.
Italy's prime minister-designate raced to assemble a new government so he could speed up reforms and reverse a collapse in market confidence. The yield on Italy's 10-year benchmark bonds leaped above 7 percent, pushing government borrowing costs to a level widely seen as unsustainable.
Shares of U.S. banks, which are sensitive to flare-ups in Europe's debt crisis, were weak early. Citigroup Inc (C.N) fell 1.7 percent to $27.88.
A silver lining came in the form of stronger-than-expected retail sales in October and a report showing the New York manufacturing sector rose in November, ending five straight months of contraction.
But Doug Roberts, chief investment strategist at Channel Capital Research.com in Shrewsbury, New Jersey, said while the data were OK but are not resounding, investors were still focused on Europe.
It is what I call the elephant in the room, he said. What people are thinking about more than anything is what could trigger a major recession and dislocation, and that's really Europe.
The Dow Jones industrial average .DJI rose 12.64 points, or 0.10 percent, at 12,091.62. The Standard & Poor's 500 Index .SPX was up 2.01 points, or 0.16 percent, at 1,253.79. The Nasdaq Composite Index .IXIC put on 6.65 points, or 0.25 percent, at 2,663.87.
When Italian bond yields rose above 7 percent last week, the S&P 500 fell nearly 4 percent in one day. Heightened volatility has marked U.S. equities trading recently as investors fret about the debt crisis.
In the latest earnings reports, Wal-Mart Stores Inc's (WMT.N) quarterly profit missed expectations as the economy continues to weigh on customers at its U.S. unit, its largest division. Its shares dropped 1.8 percent to $57.81.
Home Depot Inc (HD.N) raised its fiscal-year outlook for the third time in six months as efforts to improve distribution and boost customer service helped the No. 1 home improvement chain gain share from archrival Lowe's Cos Inc (LOW.N). Home Depot rose 0.6 percent to $38.47.