Stocks up on expected foreclosure deal but Dow off

NEW YORK (Reuters) - Most U.S. stocks rose on Thursday after news that Citigroup Inc (C.N) agreed to support legislation aimed at stemming home loan foreclosures, offsetting Wal-Mart's disappointing sales and outlook.

The Dow fell, however, led down by a 7.5 percent decline in Wal-Mart as the discounter's sluggish December sales signaled another downturn in consumer spending, reviving fears of a prolonged recession.

Citigroup's reported backing of legislation that would bring relief to struggling borrowers brought on board the support of one of the largest U.S. retail financial institutions -- seen as a key move in winning support for the bill.

The foreclosure plan "has a long-term positive effect on the economy. The stock market looks six months out and something along these lines will help the market," said Tim Smalls, head of U.S. stock trading at Execution LLC in Greenwich, Connecticut.

Investors also snapped up some of Wednesday's worst losers, including Microsoft and Apple, driving the Nasdaq up more than 1 percent.

The Dow Jones industrial average .DJI was down 27.24 points, or 0.31 percent, to 8,742.46. The Standard & Poor's 500 Index .SPX was up 3.08 points, or 0.34 percent, to 909.73. The Nasdaq Composite Index .IXIC gained 17.95 points, or 1.12 percent, to 1,617.01.

U.S. President-elect Barack Obama made another pitch for a massive economic stimulus plan, though there was some nervousness among investors as few new details were added.

But the Nasdaq rose, helped by a 23 percent jump in Sears Holdings Corp (SHLD.O) after it forecast quarterly profit above Wall Street estimates, even as its rivals posted disappointing December sales.

Microsoft (MSFT.O) rose 4.3 percent to $11.36, while Apple (AAPL.O) climbed 1.9 percent to $92.70.

But shares of Wal-Mart Stores Inc (WMT.N) slid to $51.38, making it the top drag on the Dow as about $16.3 billion of market value was wiped from the world's biggest retailer.

Wal-Mart's announcement was yet another bleak sign that consumer spending, which accounts for about two-thirds of U.S. economic activity, continues to flounder as households fret about growing unemployment and shrinking personal savings.

Trading was choppy as the broader market oscillated between losses and gains throughout the session a day before data that is expected to show more than half a million U.S. nonfarm jobs were lost in December and unemployment rose to 7 percent.

The Dow closed at its lowest level since December 30, and is down 32 percent from 52 weeks ago.

Citigroup added 0.1 percent to $7.16 after lawmakers said the No. 2 U.S. bank had agreed to support legislation that would allow bankruptcy courts to erase some mortgage debt to help bankrupt homeowners better handle their payments.

The Dow Jones Home Builders index .DJUSHB rose 4.6 percent on the mortgage news, led by D.R. Horton (DHI.N), which added 7.8 percent to $8.16, and Toll Brothers (TOL.N), up 4.8 percent to $21.68.

With Thursday as the market's fifth session of the new year, a down day would have fueled anxiety about its ability to push ahead with a recovery from its November 21 bear market low.

According to the Stock Trader's Almanac, January's first five days act as an "early warning" on the year's prospects.

The S&P 500 finished Thursday up 0.72 percent, but the Dow is off 0.39 percent so far on the year.

Volume was light on the New York Stock Exchange, where about 1.2 billion shares changed hands, below last year's estimated daily average of 1.49 billion. On the Nasdaq, about 2.01 billion shares traded, also below last year's daily average of 2.28 billion.

Advancers outnumbered decliners on both the New York Stock Exchange and Nasdaq by a ratio of about three to two.

(Additional reporting by Deepa Seetharaman; Editing by Leslie Adler)