Stocks are paring early gains amid a mixed economic outlook from the International Monetary Fund and falling commodity prices.
Stocks rose modestly in the early going Wednesday, rebounding from a sharp sell-off the day before, but trepidation about the economy continues to be a cloud over the market.
After sending stocks soaring this spring on the belief that the economy was turning around, investors have put their buying on hold since mid-June amid growing evidence that the economy is still strained. Investors are worried that the world economy may take longer to emerge from recession than originally hoped.
On Wednesday, the International Monetary Fund lowered its global economic forecast, further validating for investors that their hopes for a robust recovery may have been a bit premature.
The IMF said it expects the world economy to shrink by 1.4% in 2009, slightly worse than its earlier estimate of 1.3%. But it boosted its estimate for global economic growth in 2010 to 2.5%, up from its April projection of 1.9%.
A recovery is on its way, analysts say, investors just need to be more realistic about its pace.
"At least for the first year of the expansion we're likely to see quite anemic growth," said Avery Shenfeld, chief economist at CIBC World Markets. "The message is to be patient. The broader rise in equities that we've seen since the spring will eventually prove to be warranted."
Meanwhile, oil prices fell again Wednesday, hovering near $62 a barrel after hitting an eight-month high of $73 last week. Investors are interpreting falling oil prices as a sign of economic weakness as industrial and manufacturing activity remains in a slump.
Investors also want to see what Alcoa has to say about the economy in its earnings report, which comes out after the market's close.
Wall Street analysts expect Alcoa aa to post a second-quarter loss of 38 cents a share. In the same period a year earlier, Alcoa earned 66 cents a share on revenue of $7.6 billion.
Investor confidence has waned after poor U.S. and European jobs data and plunging commodities prices.
Overseas Wednesday, Japan's Nikkei stock average fell 2.4%. In afternoon trading, Britain's FTSE 100 and Germany's DAX index were flat, and France's CAC-40 was down 0.5%.
World leaders including President Obama will be discussing the global economy as they start a three-day meeting in Italy.
Investors will also be looking to glean what they can from a key report on May consumer credit data, due out at 3 p.m. ET.
The Federal Reserve report is expected to show that consumer credit fell $9.5 billion from April, according to Wall Street economists surveyed by Thomson Reuters. If they are right, it would mark the latest move by consumers to curb their borrowing, pay down debt and get their household budgets in better shape. That is a concern for investors because it means consumers aren't spending at the levels needed for an economic recovery.
Meanwhile, bond prices were mixed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.45% from 3.46% late Tuesday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.18% from 0.17% late Tuesday.
The dollar mostly rose against other major currencies, while gold prices fell.