Market up after U.S. debt deal, IBM shares hit two-year low

By Julia Edwards

NEW YORK (Reuters) - U.S. stocks neared record highs on Thursday as investors regained confidence in the market following a last-minute deal to avoid a U.S. default, but weakness in IBM pulled the Dow lower.

The S&P 500 reached 1729.64, just under its record intraday high of 1729.86 on September 18. The CBOE Volatility Index <.VIX>, a measure of investor anxiety, fell to 13.60, its lowest since September 26, the week before the government shutdown began.

Congress on Wednesday approved an 11th-hour deal to end a partial government shutdown and pull the world's biggest economy back from the edge of default.

"This has been a market with a 'buy the dip' mentality. If investors are convinced money is going to flow into the market for whatever reason, they may not want to miss that run up," said Quincy Krosby, market strategist for Prudential Financial in Newark.

The Dow, however, fell, pulled down by International Business Machines Corp's shares. That stock hit a two-year low a day after reporting weaker-than-expected revenue, and accounted for 78 points off the Dow Jones industrial average. IBM was the biggest decliner on the S&P 500, trading down 6.8 percent to $174.04.

The political wrangling has led some investors to believe the U.S. Federal Reserve will have no choice but to leave its fiscal stimulus measures in place for several more months. This could bolster stocks in coming months.

"We never really had a chance to have a nice rally off the Fed's lack of tapering because when we got the news back in September everyone started worrying about the budget situation," said Paul Zemsky, chief investment officer for multi-asset strategies for ING Investment Management.

A Reuters survey showed economists have grown less optimistic about prospects for the economy as the fight over fiscal policy takes its toll.

The Dow Jones industrial average was down 55.66 points, or 0.36 percent, at 15,318.17. The Standard & Poor's 500 Index was up 4.70 points, or 0.27 percent, at 1,726.24. The Nasdaq Composite Index was up 9.48 points, or 0.25 percent, at 3,848.92.

On a revenue basis, 54.4 percent of companies in the S&P 500 have bested Wall Street estimates, below the 61 percent average since 2002 but above the 49 percent average for the past four quarters.

EBay Inc dropped 3.9 percent at $51.46 as the biggest drag on the Nasdaq 100 index after the company gave a disappointing holiday forecast on Wednesday, saying the U.S. economic environment had deteriorated partly because of the government shutdown.

Goldman Sachs shares fell 2.6 percent to $158 after the fifth-largest U.S. bank by assets said its quarterly profit dropped amid weak bond-trading volumes.

Verizon Communications Inc was a bright spot as shares rose 3.3 percent to $48.79 after the company posted stronger-than-expected third-quarter earnings and revenue.

The number of Americans filing new claims for unemployment benefits dropped from a six-month high last week but remained elevated as California continued to deal with a backlog related to computer problems.

The pace of manufacturing growth in the U.S. mid-Atlantic region slowed slightly in October, but firms' optimism about the future hit a 10-year high, the Philadelphia Federal Reserve Bank said.

(Reporting by Chuck Mikolajczak; Editing by Kenneth Barry and Nick Zieminski)