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Stocks closed higher, benefiting from rallying oil prices and energy shares that helped offset the caution ahead of a Federal Reserve interest rate decision. The market held up pretty well considering the big stocks that are down after reporting a now familiar pattern of okay earnings and lackluster guidance. Its likely that we will stay around current levels until we can get a sense of where the economy’s headed and what the Fed will do.

Today, the Dow Jones Industrial average closed up 32.53 or 0.26% to 12,523.31, while the broader S&P 500 closed up 8.20 or 0.58% to 1,428.82, and the tech-heavy Nasdaq composite closed up 7.55 or 0.31% to 2,448.64.

Market breadth was positive. On the New York Stock Exchange, winners topped losers by 23 to 9 on volume of 1.53 billion shares. On the Nasdaq, advancers beat decliners 18 to 11 on volume of 1.82 billion shares.

In the Fed meeting tomorrow, policymakers are expected to hold the key short-term interest rate steady. However, investors will be attuned to what the bankers have to say in the accompanying statement about the economy and the future direction of interest rates. Last fall, stocks rallied partly on bets that the Federal Reserve would start cutting rates as soon as the first quarter of this year. But such bets have disappeared in response to recent reports that have suggested a stronger finish to the fourth quarter and start to the first than had been expected. Investors have been coming to terms with the likelihood that the Federal Reserve may not cut interest rates any time soon.

Ahead of the Fed, reports are expected on the GDP growth in the fourth quarter, manufacturing in the Midwest and national construction spending. Also, the ADP monthly employment survey is due, and serves as something of a precursor to Friday’s more closely-watched January jobs report. The reading on consumer confidence showed that the index rose to 110.3 in January from an upwardly revised 110 in December. This showed consumers most comfortable with the present situation, rather than the future, reflecting the strong jobs growth and lower oil and gas prices that have been seen recently.

Stock of 3M closed down $4.26 or 5.4% to $74.70, on posting a weaker-than-expected fourth-quarter profit and caution about the slowdown in the global economy. The slowdown in the U.S. housing and automotive markets had a significant negative impact on sales and gross margins in a handful of divisions. The company had a net profit of $1.18 billion, up from $746 million earned in the year-ago period.

Shares of United Parcel Service slumped about 2.7% after reporting fourth-quarter earnings that matched expectations but revenue and a 2007 outlook that fell short, as it forecast slowing domestic demand in the U.S. The company reported fourth-quarter earnings of $1.13 billion, up from $1.05 billion a year earlier. Its revenue rose 5.6% to $12.63 billion from $11.95 billion a year ago. In addition, UPS said it expects 2007 EPS of $4.10.

Stock of Procter & Gamble closed down $0.29 to $64.59, after reporting higher quarterly sales and earnings that topped estimates, thanks to strong sales of its consumer products. The company also boosted its 2007 profit outlook. However, investors focused on the company’s organic sales growth, which came in at the lower end of its guidance. Its second-quarter income rose 12% to $2.86 billion, from $2.55 billion a year ago. Its sales advanced 8% to $19.73 billion from $18.34 billion. Organic sales rose 5%, toward the low end of the company’s guidance.

Shares of Motorola closed up $1.27 or 7% to $19.58, on news that billionaire investor Carl Icahn is looking for a seat on the telecom’s board. Icahn owns about 33.5 million shares of the company, or about 1.3% of its shares outstanding. Icahn is famous for pressuring management for changes at companies in which he invests.

U.S. light crude oil for March delivery added $2.96 to settle at $56.97 a barrel on the New York Mercantile Exchange, a rise of 5.5 percent.

All the best,
Manuel Jesus-Backus
The Portfolio Crafter
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