Stocks edged higher on Monday after central banks pumped more cash into the global financial system and a report showed U.S. consumers spent more freely than expected last month.

But the major indexes pared early gains after financial stocks -- which had opened the session strongly -- reversed course as investors remained jittery about losses tied to subprime mortgage troubles.

Financial stocks had earlier drawn support from news investment bank Goldman Sachs Group Inc. and outside investors will pump $3 billion into a hedge fund that had been hammered by recent market turmoil.

The buying is somewhat tentative, with investors divided over the market outlook, said Michael Sheldon, chief market strategist, New York brokerage Spencer Clarke.

There is a lot that's still out there we don't know about, and therefore investing in the brokerage sector remains a risky endeavor.

The Dow Jones industrial average was up 37.80 points, or 0.29 percent, at 13,277.34. The Standard & Poor's 500 Index was up 4.59 points, or 0.32 percent, at 1,458.23. The Nasdaq Composite Index was up 4.19 points, or 0.16 percent, at 2,549.08.

Goldman Sachs shares were down 0.5 percent at $179.65, reversing earlier sharp gains. S&P financials fell 0.2 percent.

The Federal Reserve added $2 billion in temporary reserves and said it was prepared to take additional steps to inject cash. Earlier, Japanese and European central banks pumped more funds into their banking systems.

Retail sales rose more than expected in July, the Commerce Department said, which also revised June's figures upward to show a smaller drop.

In another positive development, the outlook for earnings was raised. Second-quarter earnings are now projected to rise 8.6 percent from the year before, compared with an estimate of 7.8 percent last week, according to Reuters Estimates.

But signs of trouble in the mortgage sector remained.

Accredited Home Lenders Holding Co. said on Monday it had sued private equity firm Lone Star Funds, seeking to force it to complete the $400 million takeover of the money-losing subprime mortgage lender.

Shares of Accredited tumbled 30 percent to $6.22 and topped the list of the Nasdaq's biggest percentage losers.

(Additional reporting by Ellis Mnyandu)