Dow up, S&P and Nasdaq dip as earnings drag

A trader works on the floor of the New York Stock Exchange in New York, April 16, 2008

NEW YORK (Reuters) - The Dow average inched higher on Thursday afternoon, but the S&P 500 and the Nasdaq dipped as earnings from Pfizer (PFE.N) and cautious outlooks from eBay Inc (EBAY.O) and United Technologies Corp (UTX.N) offset stronger-than-expected results from IBM (IBM.N).

The S&P 500 and the Nasdaq were only slightly lower, even after all three major indexes rose sharply on Wednesday, when investors saw reassuring results from Intel Corp (INTC.O) and JPMorgan Chase & Co (JPM.N).

Adding to negative sentiment was a report from the Federal Reserve Bank of Philadelphia showing that factory activity in the mid-Atlantic region contracted for a fifth straight month in April. For details, see <ID:nN17436696>.

"The market is pretty flat, but that's a big deal because most market participants would have thought we would have seen a sell-off after yesterday," said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey. "The market hasn't given anything back, which tells you we might have further legs to the upside."

Pfizer shares dropped 3.9 percent to $20.28 on the New York Stock Exchange, while eBay shares slid 4 percent to $30.84, a drop that ranked the stock among the Nasdaq's worst performers, along with biotechnology company Gilead Sciences Inc (GILD.O), which fell 3.3 percent to $50.08.

The Dow Jones industrial average .DJI inched up 7.24 points, or 0.06 percent, to 12,626.51. But the Standard & Poor's 500 Index .SPX dipped 0.22 of a point, or 0.02 percent, to 1,364.49. The Nasdaq Composite Index .IXIC fell 9.35 points, or 0.40 percent, to 2,340.76.

International Business Machines Corp, a tech bellwether, lifted the Dow after the technology services company raised its 2008 outlook late on Wednesday. IBM's stock rose 2.2 percent to $123.20.

Another bright spot was Merrill Lynch & Co Inc MER.N, whose stock rose 4.8 percent to $47.04 after the investment bank reported write-downs of $6.5 billion in subprime mortgages and other risky debt, which met analysts' expectations.

"Not only is risk associated with this credit meltdown being managed, but it looks like it might be coming to an end," Kenny said.

Pfizer shares were among the biggest drags on the Dow and limited its afternoon gain after the drug maker reported a larger-than-expected drop in quarterly profit.

Diversified manufacturer United Technologies warned of a slowing economy, sending its stock down 2.3 percent to $70.97 on the NYSE.

Investors sold some eBay shares after the online auctioneer said the softening U.S. and UK economies had modestly slowed demand. In afternoon trading, the stock was the second-heaviest weight on the Nasdaq 100 .NDX.

Among Thursday's economic reports, the Philadelphia Federal Reserve Bank's index of business activity, which covers the Middle Atlantic states, recorded its worst performance in seven years.

(Additional reporting by Cal Mankowski; Editing by Jan Paschal)