By: JeeYeon Park
CNBC.com Writer
Stocks erased their early losses and struggled to turn higher in thin trading Wednesday but gains were limited as investors remained cautious ahead of a key EU summit at the end of the week.
The Dow Jones Industrial Average edged higher, after finishing higher in the previous session. Caterpillar [CAT 94.10 
-1.86 (-1.94%) 
] slipped on the blue-chip index, while JPMorgan [JPM 33.71 
0.48 (+1.44%) ] gained.
The S&P 500 and the Nasdaq also shaved their losses. The CBOE Volatility Index, widely considered the best gauge of fear in the market, climbed above 28.
Among key S&P sectors, energy slipped, while financials gained.
“This is still a headline-driven market and when confidence is shook, borrowers will continue to sit on the sidelines,” said Kevin Brungardt, chairman of RoundPoint Financial Group. “Europe is driving this market and if they are unable to contain the contagion, then that hampers our ability to diminish the unemployment rate and diminish our ability to grow.”
Brungardt said he expect the economy to continue in a “slow crawling” pace and the housing market will start to see an influx by early 2013.
Stocks opened lower following a statement from a German official that dashed investor hopes for a new boost to EU's bailout mechanism.
Geithner is due to meet French President Nicolas Sarkozy before flying to the southern French port of Marseille for discussions with incoming Spanish Prime Minister Mariano Rajoy.
Details of reform proposals to the European Union's treaty were due to be presented on Wednesday in a letter to European Council President Herman Van Rompuy, who will chair the meeting of 27 EU leaders due to start Thursday evening.
Energy stocks dragged on the market as oil dipped below $100 a barrel after a bearish weekly oil inventory report. Peabody Energy [BTU 36.785 -1.455 (-3.8%) ] and Halliburton [HAL 33.6976 -1.8724 (-5.26%) ] were the biggest sector laggards.
Investors seemed to have mostly digested S&P's downgrade warnings. However, the agency added it could also cut credit ratings for several U.S. regional banks, including US Bancorp [USB 26.10 -0.11 (-0.42%) ], PNC Financial Services [PNC 55.31 0.34 (+0.62%) ], and BB&T [BBT 23.6101 0.0701 (+0.3%) ] in an ongoing move to apply new grading criteria announced last month.
Also among banks, Citigroup [C 29.26 -0.49 (-1.65%) ] declined after the banking giant announced that it would cut almost 4,500 jobs worldwide, almost 2 percent of its workforce.
India suspended plans to open its $450 billion supermarket sector to foreign groups such as Wal-Mart [WMT 58.80 0.39 (+0.67%) ] Stores, backtracking on one of the government's boldest reforms in years in the face of a huge political backlash.
MidAmerican Energy, part of Warren Buffett's Berkshire Hathaway [BRK.A 116348.00 -1077.00 (-0.92%) ], is to buy First Solar's [FSLR 49.222 3.112 (+6.75%) ] 550-megawatt Topaz Solar Farm power plant in California, a source familiar with the transaction said.
Apple [AAPL 388.32 -2.63 (-0.67%) ] will be in the spotlight after HTC said it has no plans to change fourth-quarter sales guidance, as shares in the world's No.4 smartphone maker fell over 5 percent on concern its sales decline may not moderate from a 30 percent drop in November.
General Motors [GM 21.90 0.22 (+1.01%) ] is closing in on a package of proposed fixes for the Chevrolet Volt battery pack that engineers believe would eliminate the risk of a fire being triggered days after a crash, two people with knowledge of the situation said.
Martha Stewart Living Omnimedia [MSO 4.031 0.911 (+29.2%) ] surged after news JC Penney [JCP 33.372 0.072 (+0.22%) ] may be buying a 16.6 percent stake in the diversified media and merchandising company for $38.5 million, according to the New York Times.
Talbots [TLB 2.55 0.99 (+63.46%) ] skyrocketed after the women's clothing retailer said the private-equity firm run by retail veteran Stefan Kaluzny offered a $212.1 million buyout. Meanwhile, Nomura raised its price target on the firm to $3 from $2 and Wedbush boosted its rating on the firm to "neutral" from "underperform."
And Men's Wearhouse [MW 31.86 4.67 (+17.18%) ] jumped after the apparel retailer posted earnings that topped estimates.
On the economic front, weekly mortgage applications jumped last week as interest rates continued to decline, according to the Mortgage Bankers Association.
Meanwhile, China's annual rate of export growth slowed in November versus October, vice commerce minister Chong Quan told reporters after an official media briefing.
—Follow JeeYeon Park on Twitter: twitter.com/JeeYeonParkCNBC—
THURSDAY: BoE announcement, ECB announcement, McDonald's sales report, jobless claims, wholesale trade, AT&T CEO speaks; Earnings from Costco, Smithfield Foods
FRIDAY: International trade, consumer sentiment, Greek short selling ban expires, EU summit
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