The market also contended with a resurgence of tensions between the U.S. and Iran.

Investors have grown more optimistic about a rate cut at the Fed's Jan. 29-30 meeting after last week's disappointing reports on jobs and manufacturing pointed to a slowing in the economy last month. And, they might get some clues about the central bank's stance when its chairman, Ben Bernanke, delivers a speech on Thursday.

That optimism kept stocks from falling far during a session that saw the major indexes reverse course several time. But Wall Street remained uneasy as it awaited fourth-quarter earnings season, which unofficially starts Wednesday, when aluminum producer Alcoa Inc. posts results. Analysts said investors will be paying particular attention to financial services stocks that have been hit hard by the ongoing credit crisis.

"I have the feeling the market wants to hear some good news, and that one of these days we're going to get it and see a tremendous move higher," said Matt Kelmon, portfolio manager of the Kelmoore Strategy Funds. "We pretty much know the Fed is going to lower rates again, but the real catalyst might come from some of these earnings reports."

A warning from the White House to Iran also kept volatility high, following an incident involving that country's forces and three U.S. Navy ships in the Strait of Hormuz on Sunday.

According to preliminary calculations, the Dow Jones industrial average rose 27.31, or 0.21 percent, to 12,827.49, after moving in and out of positive territory throughout the session.

Broader stock indicators ended mixed. The Standard & Poor's 500 index rose 4.55, or 0.32 percent, to 1,416.18, and the tech-focused Nasdaq composite index fell 5.19, or 0.21 percent, to 2,499.46.

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