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Stocks edge higher after mixed economic reports

Steve Rothwell, Markets Writer

FILE - In this Monday, Sept. 16, 2013, file photo, specialist Michel Pistillo works at his post on the floor of the New York Stock Exchange. U.S. stock futures are mixed with a confrontation over the budget looming. Investors are also getting a better gauge of the housing market Tuesday, Sept. 24, 2013, with a pair of earnings releases, as well as July pricing data from S&P/Case-Shiller and the Federal Housing Finance Agency. (AP Photo/Richard Drew, File)

NEW YORK (AP) -- The stock market rose slightly in afternoon trading Tuesday after two key reports gave a mixed picture of the U.S. economy.

One showed that home prices in July rose the most in more than seven years. Another showed that Americans' confidence in the economy fell slightly in September as many people became less optimistic about hiring and pay increases.

The modest gains in stocks, if they hold, would end a three-day losing streak that followed a record high last week.

Investors are searching for direction after the Federal Reserve's surprise decision last Wednesday to keep its stimulus program intact. They had expected a reduction in the Fed's $85 billion in monthly bond purchases. Traders are now parsing economic reports and comments from Fed officials to gauge the central bank's next move.

Investors also are trying to figure out the political gridlock in Washington. They are concerned that the federal government could shut down because Washington lawmakers appear to be making little progress in budget talks.

"A government shutdown starting next week is looking increasingly likely," said Jim Russell, a regional investment director at U.S. Bank. "That will not be welcomed by the capital markets."

But Brad Sorensen, director of market and sector research at Charles Schwab, thought that investor worries about a government shutdown could ultimately be short-lived.

Stocks plummeted in the summer of 2011 as lawmakers wrangled about raising the debt ceiling. The market also sagged in October last year before the Presidential elections, on concerns that a divided government would be unable to agree on tax reform. Each time though, backed by the Fed's economic stimulus, the market came back stronger.

After falling 2 percent in October of last year, the Standard & Poor's 500 index rose for seven straight months, gaining 15 percent.

"Investors are becoming a little bit immune to the games that Washington has started to play," Sorensen said. "Investors with a stronger stomach should probably buy the dip."

After three days of losses, stocks appeared headed for another decline on Tuesday. But they reversed course late in the morning. By early afternoon, the Dow Jones industrial average was up 23 points, 0.2 percent, to 15,425. The S&P 500 index rose four points, or 0.3 percent, to 1,706. The Nasdaq composite edged up 22 points, to 0.5 percent, to 3,785.

Industrial stocks were the biggest gainers among the 10 industry groups that form the S&P 500.

Before the market opened, a survey showed that home prices rose the most since February 2006. A revival in housing has been one of the bright spots for the economy.

In another key economic gauge, the Conference Board, a New York-based private research group, said that its consumer confidence index dropped to 79.7 in September, down from August's 81.8.

Consumers' confidence is closely watched because their spending accounts for 70 percent of U.S. economic activity. Confidence has grown since the Great Recession, but it hasn't hit a reading of 90, which typically accompanies a healthy economy.

In government bond trading, the yield on the 10-year Treasury note rose fell to 2.65 percent from 2.70 percent late Monday.

Among stocks making big moves:

— Applied Materials, a chip-making equipment manufacturer, rose $1.18, or 7 percent, to $17.17, after it agreed to acquire rival Tokyo Electron.

— Facebook rose $1.93, or 4 percent, to $49.11 after Citigroup upgraded the company's stock to a "buy" recommendation from "neutral," saying that it expects the company to continue to grow, helped by increasing advertising revenue contributions from its mobile website.

—Carnival, the cruise ship operator, fell $2.56, or 7 percent, to $34.86 after the company said that it expects revenue to drop more than its prior forecast.

— Red Hat, a software company, fell $5.62, or 11 percent, to $47.31, after the company said that billings for the quarter were lower than expected and it issued disappointing revenue predictions for the current quarter and full year.