A brief morning rally Thursday pushed the Dow Jones industrial average above its highest close since the financial crisis of 2008, but disappointing economic data tempered traders' optimism later in the day, and stocks finished lower.
Solid news on factory orders and strong earnings from U.S. manufacturers, highlighting one of the economy's bright spots, helped the market open higher. The Dow rose 85 points.
But the Dow and broader indexes turned negative after weaker reports on home sales and future economic growth were released in the late morning. The Dow closed down 22.33 points, or 0.2 percent, at 12,734.63.
The Dow and other indexes are still up sharply for the year, and for about 45 minutes Thursday morning, the Dow traded above 12,810.54, its peak from last year and the highest close since the spring before the 2008 financial crisis.
Traders appear less afraid of spillover damage from the European debt crisis, and data on jobs and manufacturing have been consistently strong. The Dow is up more than 4 percent for the year.
"With global risk off center stage and attention going back to the fundamentals, this market was ready to explode, which is exactly what it is doing," said Doug Cote, chief market strategist with ING Investment Management.
The government reported early Thursday orders to factories for long-lasting manufactured goods increased in December for the second straight month, and a key measure of business investment rose solidly.
That strong demand was apparent in quarterly earnings reports from U.S. manufacturers. 3M stock closed 1.3 percent higher after its fourth-quarter profit beat Wall Street's estimates.
Caterpillar, the world's biggest heavy equipment maker, rose 2.1 percent, the most of the 30 companies in the Dow, after beating analysts' estimates last quarter. The company expects to do the same this year as global demand remains high.
Later in the day, the government reported an unexpected drop in new home sales in December, capping the worst year for home sales since record-keeping began in 1963. A private gauge of future economic activity also grew more slowly than expected.
3M and Caterpillar led the gains for the Dow. AT&T dragged the average lower, falling 2.5 percent after its earnings missed Wall Street's forecasts. AT&T depends heavily on the Apple iPhone but recently lost its exclusive rights to sell it in the U.S.
The Dow's post-crisis high during the trading day was 12,928.45, reached May 2, 2011. It traded as high as 12,841.95 on Thursday. The average would need to rise about 11 percent to get to its record high close of 14,164.53, reached on Oct. 9, 2007.
The Standard & Poor's 500 closed down 7.63 points, or 0.6 percent, at 1,318.43. It was dragged lower by volatile financial companies and telecommunications firms including AT&T. Its post-crisis peak was 1,370.58, also set May 2, 2011.
The Nasdaq shed 13.03 points, or 0.5 percent, to close at 2,805.28.
Stocks had their highest close in eight months Wednesday after the Federal Reserve said it plans to keep interest rates extremely low until late 2014 to encourage lending and investment and support the economic recovery.
The yield on the 10-year Treasury note fell to 1.93 percent late Thursday from 1.99 percent late Wednesday. The prospect of more bond-buying by the Fed helped make Treasurys more attractive. A bond's yield falls as demand for it increases.
Among the other U.S. companies making big moves after reporting quarterly earnings:
_ Time Warner Cable Inc. rose 7.8 percent after the company reported earnings far above analysts' estimates. It also raised its dividend 17 percent to 56 cents per share and announced plans to buy back more of its own stock.
_ United Continental Holdings, parent of United and Continental airlines, surged 6.3 percent. Its fourth-quarter loss narrowed, its adjusted earnings were more than double what analysts had expected, and the cost of integrating the two companies fell.
_ Netflix soared 22.1 percent, the most of any stock in the S&P 500, after the video streaming and DVD-by-mail company reported a huge gain in customers and a bigger fourth-quarter profit than analysts had expected.
_ Colgate-Palmolive rose 1.9 percent after saying it will raise prices in the U.S. for the first time in years to cover higher costs for materials. The company's profit declined last quarter, but core sales in emerging markets were much stronger.
Follow Daniel Wagner at http://www.twitter.com/wagnerreports.