The Dow briefly scaled above the 12,900 level for the first time since early January.

Sellers held sway early in the session after the government reported sales of new homes fell last month to the lowest level since 1991. While the decline was expected, it appeared to stir concerns that the hangover from the housing bubble would remain an intractable obstacle for the economy.

The back-and-forth trading wasn't surprising as investors tried to square their concerns about forecasts from Amazon.com and Starbucks with the drop in weekly unemployment claims, results from Ford and sagging oil prices.

Some of the outlooks issued by companies in recent days have underscored a worrisome notion that the economy might enter a prolonged period of sluggishness, while others signaled for some investors that Wall Street has been overly dour in its assessment of the business climate.

The dollar rose against other major currencies, helping to lower commodities prices and lending support to a notion that the economy could be on the mend.

John Merrill, chief investment officer at Tanglewood Capital Management in Houston, said investors are seeing confirmation of many of the economic themes that have played out in recent months, with weakness in the financial, homebuilding and automotive sectors and relative strength elsewhere.

"The earnings picture is not so bleak as people though it was going to be," he said. "There's been so much talk of the spillover from the credit crunch and homebuilding into the real economy and that just doesn't seem to have happened."

The Labor Department's report that claims for unemployment benefits declined by 33,000 last week to 342,000 came as a surprise after economists predicted claims would rise by 3,000. The notion that unemployment might be contained appeared to cap some concern about the economy. With consumer spending accounting for about 70% of U.S. economic activity, a rise in unemployment could dent people's willingness to reach into their wallets.

While investors appeared pleased by the employment report, not all the day's economic news was welcome. The Commerce Department said new-home sales fell by 8.5% in March to a seasonally adjusted annual rate of 526,000 units — the slowest pace since October 1991. Also, the median price of a new home showed the sharpest year-over-year decline in nearly four decades.

Moreover, orders to factories for durable goods — big-ticket items like refrigerators, cars and computers — fell for a third straight month in March. This marks the longest sustained pullback since the 2001 recession.

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