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Microsoft ( MSFT ) gains after new share-buyback plan, dividend

hike

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Intel ( INTC ) gains following collaboration with Amazon's ( AMZN ) AWS

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Retail sales unexpectedly rise in August

(Updated at 4:09 p.m. ET/2009 GMT)

By Chuck Mikolajczak

NEW YORK, Sept 17 (Reuters) - U.S. stocks closed nearly

unchanged on Tuesday, giving up earlier gains that had vaulted

the S&P 500 and Dow Industrial Average to record highs as

investors braced for the first Federal Reserve rate cut in 4-1/2

years.

The benchmark S&P 500 index touched 5,670.81 earlier in the

session, after fresh economic data eased worries of a sharp

slowdown in the U.S. economy.

The latest report from the U.S. Commerce Department showed

retail sales rose unexpectedly in August, after a decline in

auto dealership receipts was offset by strength in online

purchases, suggesting the economy was on solid footing through

most of the third quarter.

"Expectations were pretty well entrenched before calling

into today's economic data and what they showed was generally a

growth environment, but a relatively slow-growth environment,"

said Russell Price, chief economist at Ameriprise Financial

Services in Troy, Michigan.

Price said the size of the cut could either stoke inflation

fears or increase worries the Fed is moving too slowly to avoid

a recession.

"What you're seeing in this afternoon's trading is the way

we pulled off of the all-time high ... because tomorrow

somebody's going to be disappointed," he said.

The Dow Jones Industrial Average fell 15.90 points,

or 0.04%, to 41,606.18, the S&P 500 gained 1.49 points,

or 0.03%, to 5,634.58 and the Nasdaq Composite gained

35.93 points, or 0.20%, to 17,628.06.

Markets are pricing in a 65% chance the Fed will cut

borrowing costs by 50 basis points at the conclusion of its

two-day meeting on Wednesday, according to the CME's FedWatch

Tool. Market expectations on the cut's size have been volatile

in recent days, with only a 34% chance of a 50-bps cut priced in

as of last week.

Microsoft ( MSFT ), up 0.88%, was the biggest lift to the

S&P 500, as shares rose after the AI frontrunner's board

approved a new $60-billion share-buyback program and hiked its

quarterly dividend by 10%.

The blue-chip Dow hit a record intraday high for a

second-straight day. The Russell 2000 index tracking

small caps, which investors view as likely to benefit from a

lower rate environment, outperformed the three major indexes,

climbing 0.74% on the session.

Energy, up 1.41%, was the best-performing of the 11

major S&P sectors, buoyed by a climb in crude prices, while

healthcare was the worst-performing with a decline of

1.01%.

Among other movers, Intel ( INTC ) gained 2.68% after

signing Amazon.com's ( AMZN ) cloud-services unit as a customer

to make custom artificial-intelligence chips. Amazon.com ( AMZN ) shares

advanced 1.08%.

Advancing issues outnumbered decliners by a 1.55-to-1 ratio

on the NYSE and on the Nasdaq, advancing issues outnumbered

decliners by a 1.25-to-1 ratio.

The S&P 500 posted 48 new 52-week highs and no new lows

while the Nasdaq Composite recorded 147 new highs and 68 new

lows.

Volume on U.S. exchanges was 10.23 billion shares,

compared with the 10.74-billion average for the full session

over the last 20 trading days.