Stocks edge higher on hopes for Europe

NEW YORK (CNNMoney) -- U.S. stocks finished mostly higher Tuesday, with the Dow and S&P extending gains from the previous day's rally, as investors remained hopeful that leaders are making progress on addressing the eurozone debt crisis.

The Dow Jones industrial average (INDU) rose 33 points, or 0.3%, and the S&P 500 (SPX) added 3 points, or 0.2%. The Nasdaq composite (COMP) finished lower, losing 12 points, or 0.5%, with Green Mountain Coffee Roasters (GMCR), Wynn Resorts (WYNN) and Netflix (NFLX) dragging on the index.

Financial stocks, which led Monday's advance, were also among the losers Tuesday. Bank of America (BAC, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) posted the biggest declines in the Dow. Shares of Morgan Stanley (MS, Fortune 500) and Goldman Sachs (GS, Fortune 500) also fell. Bank of America's stock dropped to $5.03, the lowest since March 2009.

After the closing bell Tuesday, Standard and Poor's cut the ratings on dozens of major banks, including Bank of America, Goldman Sachs, and Citigroup. The downgrades were the result the agency's new ratings criteria for the world's 37 largest financial institutions.

A French downgrade could derail eurozone rescue

Nerves were strained after Moody's warned that 87 banks across 15 of the 17 eurozone countries could face downgrades and Italy auctioned €7.5 billion of 3- and 10-year bonds that drew the highest yields in years. Borrowing costs in Italy have been above the uncomfortable 7% mark for days.

But investors are banking on European leaders to step up and agree to a detailed resolution to Europe's debt crisis.

European leaders are working on a new plan to ensure fiscal discipline across the euro area. The proposal is expected to give the European Union greater authority over the budget policies of individual eurozone nations.

"The story continues to be Europe, and signs of anything positive coming out of there in a deeply oversold market are enough to trigger a rally," said Fred Dickson, chief market strategist at D.A. Davidson & Co.

A two-day meeting of eurozone finance ministers got underway Tuesday. However, investors aren't expecting any major announcements until a European Union summit next week.

Market to ECB: Do something!

Optimism about a possible Europe solution, along with strong Black Friday weekend sales, also sent stocks surging on Monday.

But Dickson remains unconvinced that the enthusiasm will last.

"We've had short-term rallies based on frequent bursts of positive news, but those are quickly dampened by reality when nothing comes of these European meetings," he said. "I'm not negative, but I'm skeptical. I'll view these rallies as short-term events until we see signs of a more definitive agreement reached by the eurozone and the European Central Bank."

Economy: Stocks also found support after the Conference Board's Consumer Confidence Index shot up to 56 in November from 40.9 the prior month. Economists were expecting the reading to come in at 42.5.

The S&P/Case Shiller index, a gauge of home prices, dropped 3.9% in the third quarter compared to a year earlier, following a 5.8% year-over-year decline in the previous quarter.

Companies: American Airlines' parent company, AMR Corp. (AMR, Fortune 500), announced that it has filed for Chapter 11 bankruptcy in order to "achieve a cost and debt structure that is industry competitive." The company's stock plunged more than 80%.

Shares of rival airlines, including Delta (DAL, Fortune 500) and United Continental (UAL, Fortune 500), gained traction.

Shares of Tiffany & Co (TIF). sank after the luxury jewelry retailer reported earnings that topped forecasts, but reeled in its guidance for the fourth quarter.

Corning's (GLW, Fortune 500) stock tumbled after the company slashed its fourth-quarter outlook for profit and production of glass for LCD displays, after a major Korean customer notified Corning that it will not honor its contract for the remainder of the year.

World markets: European stocks closed slightly higher. Britain's FTSE 100 (UKX) ticked up 0.5%, the DAX (DAX) in Germany rose 1% and France's CAC 40 (CAC40) added 0.4%.

Asian markets ended with sharp gains. The Shanghai Composite (SHCOMP) and the Hang Seng (HSI) in Hong Kong climbed 1.2%, and Japan's Nikkei (N225) rallied 2.3%.

Currencies and commodities: The dollar slumped against the euro, the British pound and the Japanese yen.

Oil for January delivery rose $1.58 to settle $99.79 a barrel.

Gold futures for December deliver rose $2.60 to settle at $1,713.40 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury edged lower, pushing the yield up to 2% from 1.96% late Monday.