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Market closes up as bank stocks gain

A Wall Street street sign near the New

A Wall Street street sign near the New York Stock Exchange on Aug. 9, 2011. The economic growth outlook for the United States became cloudier after the International Monetary Fund lowered its forecast for 2014 growth to a modest 2 percent from 2.7 percent previously. Credit: AP / Mark Lennihan

Stocks closed slightly higher Tuesday, led by gains in the financial sector.

At the end of the day on Wall Street, the Standard & Poor's 500 index was up 4.2 points, about 0.2 percent, at nearly 1,942. The Dow Jones industrial average was up 27.5 points, or nearly 0.2 percent, at 16,808.5. The Nasdaq composite gained 16.1 points, or nearly 0.4 percent, to 4,33.7.2.

Banks rose as long-term interest rates moved higher. That gave banks the prospect of earning more money from making loans.

Bond prices fell after the government reported that consumer prices rose in May by the most in more than a year. The yield on the 10-year Treasury note rose to 2.65 percent.

PRICE HIKE: The Labor Department reported that U.S. consumer prices increased in May by the largest amount in more than a year, propelled by rising costs for food, gasoline and airline fares. Over the past 12 months, consumer prices are up 2.1 percent. Prices have risen at a modest pace near the Federal Reserve's 2 percent target.

FAVORED FINANCIALS: Several financial stocks were trading higher as the yield on the 10-year Treasury note increased. Among them was E-Trade Financial and Charles Schwab. Banks, including Bank of America, Goldman Sachs and Morgan Stanley, also posted gains, as the rise in long-term interest rates gave lenders the prospect of earning more money from making loans.

HOUSING: The Commerce Department said home builders started work at an annual rate on 1.01 million homes in May. That was down 6.5 percent from 1.07 million in April. Home construction has struggled to gain much traction this year, limiting its ability to contribute as much to broader economic growth as it has in the past. After initially sliding, shares in most home builders rebounded in afternoon trading.

FED WATCH: The Federal Reserve policymaking committee meets Tuesday and Wednesday. Fed officials are widely expected to keep a key short-term rate near zero. Economists don't expect the Fed to begin increasing that rate for another year. The Fed will also update its economic forecasts. That could result in the Fed trimming its estimate of 2014 growth after the government said last month that the economy shrank in the first three months of the year.

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