Strong earnings from Johnson & Johnson helped stocks rebound Tuesday, a day after suffering their worst one-day drop in more than a month.
Johnson & Johnson rose 3.7 percent, leading the 30 companies in the Dow Jones industrial average, with earnings that beat Wall Street's expectations. The health care heavyweight also raised its full-year profit forecast.
Stocks traded in a narrow range throughout the day. Goldman Sachs and other companies reported weak earnings, and worries lingered over a warning from Standard & Poor's about U.S. government debt.
Zions Bancorporation rose 3.9 percent, the most of any company in the Standard & Poor's 500 index. The Utah bank reported a first-quarter profit after posting a loss a year ago. It also said customers were getting better at paying back loans, allowing the bank to set aside less money to cover defaults.
The Dow Jones industrial average rose 65.16 points, or 0.5 percent, to close at 12,266.75. The Standard & Poor's 500 index rose 7.48, or 0.6 percent, to 1,312.62. The Nasdaq composite rose 9.59, or 0.4 percent, to 2,744.97.
Major stock indexes posted their largest one-day drop in over a month Monday after S&P said it might lower its rating on U.S. government bonds if Washington failed to tackle its mounting debts. While the rating agency kept its U.S. debt rating at AAA, the highest possible, it warned that there was a one-in-three chance it would downgrade U.S. debt within two years.
U.S. government bonds fared well despite the S&P warning. Bond prices moved higher Monday and again Tuesday, lowering their yields. The yield on the 10-year Treasury note edged down to 3.37 percent from 3.38 percent.
Economists and bond traders offered a handful of explanations. If S&P's warning prods Congress and the Obama administration to cut budget deficits sooner, it would likely lead to lower economic growth, leading traders to buy bonds.
"If it serves as a catalyst [for long-term debt reduction] then that's a good thing for Treasurys," said George Goncalves, head of U.S. rates strategy at Nomura Securities.
A slower economy would also lead the Federal Reserve to postpone any increases in interest rates, Goldman Sachs economists said in a note to clients. That would be another positive for bonds.
Goncalves said bond traders were more likely to worry about more immediate problems such as the looming fight in Congress over raising the federal debt limit, not the threat of a downgrade from S&P in 2013. "That's so far down the road," he said. "In this market, two years is an eternity."
Among other companies reporting earnings Tuesday, Goldman Sachs said first-quarter income fell 72 percent after it paid $1.64 billion in dividends to Warren Buffett's Berkshire Hathaway Inc. Goldman's stock slipped 1.9 percent.
Trucking company Paccar Inc. rose 4 percent after its income and revenues beat analysts' expectations.
Harley-Davidson Inc. reported that its income more than tripled but missed Wall Street estimates. The motorcycle maker's stock fell 5.3 percent.
United States Steel Corp. rose 4.5 percent after announcing the sale of its 841-foot U.S. Steel Tower, Pittsburgh's tallest building, to a New York-based investment group.
Texas Instruments Inc. fell less than 1 percent. The chipmaker said late Monday that the Japanese earthquake and tsunami set its production back, reducing first-quarter income and likely cutting into second-quarter growth.
After the market closed, Intel Corp. said earnings jumped 29 percent, surpassing estimates.