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The world's largest software maker, which powers more than 90 percent of the world's computers, is still a money-making machine, but its fortunes are tied to vulnerable PC sales and investors have doubts it can replicate its dominance in the fast-growing mobile and tablet markets.

Its stock is down 2.4 percent in the last 12 months, compared with a 24 percent rise in the tech-heavy Nasdaq.

"Microsoft is still a juggernaut in the PC business, Windows-based machines are still selling over 300 million a year," Tim Bajarin, president of tech research firm Creative Strategies, said earlier this week.

"But they missed the smartphone revolution, and even though they were the first to really push the tablet, Apple basically redesigned it and left Microsoft in the dust."

Sales of Windows 7 are still going strong, but likely won't match the year-ago figure, which was boosted by a one-time deferral of revenue from pre-sales of the operating system, which was launched in October 2009.

Microsoft is expected to report second-quarter profit of 68 cents per share, according to Thomson Reuters I/B/E/S, lower than the 74 cents it reported a year ago.

Overall sales are expected to inch up to $19.15 billion from $19 billion a year ago, helped by the unexpectedly strong sales of the Kinect hands-free gaming system, which sold 8 million units over the holiday shopping season, above Microsoft's own target of 5 million.

PC sales, the surest guide to Microsoft's overall health, rose only 3.1 percent in the last three months of last year, according to research firm Gartner, well below earlier estimates.

The good news for Microsoft is that business customers -- the core market for its software -- are buying new computers more readily than cash-strapped consumers, who are holding off on purchases or buying iPads instead.

That resilience of business customers helped tech bellwethers IBM and Intel Corp post positive results and outlooks over the past two weeks, helping their stocks higher.

(For a comparison of estimates and valuations with other technology companies, click: link.reuters.com/sys67r)

APPLE CRUISING PAST

One uncomfortable fact for Microsoft: unless it posts blowout numbers, it will have a lower quarterly profit than Apple for the first time in recent memory. The last time Apple produced more profit in a year than Microsoft was 1990.

Last week, Apple announced a record $6 billion quarterly profit on strong-selling iPhones and iPads over the holiday shopping season.

The U.S. dollar slipped and government bond prices pared some losses after the Fed said high unemployment still justified its $600 billion bond-buying program, despite recent signs of a strengthening recovery.

The broad S&P 500 Index closed at a 29-month high, led by gains in commodity and tech shares, as investors largely ignored the Fed's latest assessment of the U.S. economy.

The Fed's outlook after a two-day meeting of policymakers came on the heels of a government report that showed new-home sales rose to an eight-month high in December, just the latest data to signal a pick-up in economic activity.

"The market is not willing to buy into the Fed's vision," said Jim Vogel, interest rate strategist at FTN Financial in Memphis.

Strong corporate earnings continue to support further gains in equity markets, while commodities rebounded from sharp losses the previous session on optimism about demand and supply snags.

MSCI's all-country world stock index .MIWD00000PUS rose 0.6 percent.

The Reuters Jefferies CRB index .CRB, one of the broadest measures of commodity prices, settled up 1.6 percent for its strongest gain since December 31.

"By expressing disappointment about the employment situation, the Federal Reserve is signaling that it will continue to inject liquidity into the economy," said Mohamed El-Erian, co-chief investment officer at Pacific Investment Management Co. in Newport Beach, California.

"Only part of this liquidity will be absorbed by the U.S. economy. The rest will leak elsewhere, resulting in large capital flows to emerging economies and pressure on commodity prices," he said.

On Wall Street, the Dow Jones industrial average .DJI closed up 8.25 points, or 0.07 percent, at 11,985.44. The Standard & Poor's 500 Index .SPX gained 5.45 points, or 0.42 percent, at 1,296.63. The Nasdaq Composite Index .IXIC rose 20.25 points, or 0.74 percent, at 2,739.50.

The Dow rose above the 12,000 level intraday for the first time since June 2008 before it pared those gains to close just above break-even.

Stocks in Tokyo were poised to open flat, with the March futures contract that trades in Chicago for the Nikkei 225 at 10,455, or break-even.

Obama's annual State of the Union speech late Tuesday helped bolster sentiment as the president signaled corporate tax cuts, a retooling of the tax code and an end to pet spending projects coveted by many lawmakers.

Investors also ignored a report from the Congressional Budget Office, which said the U.S. budget deficit in 2011 will jump nearly 40 percent over prior forecasts, mostly due to the mammoth tax-cut package brokered by Obama and lawmakers in December.

The Commerce Department said sales jumped 17.5 percent to a seasonally adjusted 329,000 unit annual rate after a downwardly revised 280,000-unit pace in November.

Economists polled by Reuters had forecast new home sales rising to a 300,000-unit pace in December from a previously reported 290,000 unit rate.

Compared to December last year, sales were down 7.6 percent. Overall 2010 sales dropped 14.4 percent to a record 321,000-unit rate.

Data last week showed a surge in sales of previously owned home in December, but progress could be frustrated by a glut of homes from an unrelenting wave of foreclosures. The housing market has remained on the margins even as the broader economy shows signs of gaining strength and broadening out.

At December's home sales pace, the supply of new homes on the market to 6.9 months' worth, the lowest since April, from 8.4 months' worth in November. There were 190,000 new homes available for sale in December, the lowest in 43 years.

The median sales price for a new home increased 12.1 percent last month from November to $241,500, the highest since April 2008. Compared with December last year, the median price 8.5 percent, the biggest increase since August.

(Reporting by Lucia Mutikani, Editing by Neil Stempleman)

Boeing said its fourth-quarter net profit was $1.16 billion, or $1.56 per share, compared with $1.27 billion, or $1.75 per share, a year earlier.

Excluding one-time items, Boeing said it earned $1.11, which is in line with Wall Street expectations, according to Thomson Reuters I/B/E/S.

Items include a favorable non-cash tax settlement of 50 cents a share and a one-time charitable contribution. Excluding these one-time items, the company said it earned $1.11 per share.

The company predicted 2011 earnings between $3.80 and $4.00 per share, which is below the Wall Street forecast of $4.55 per share. Boeing said the results would be affected by "higher pension expense, the revised 787 schedule and the current defense contracting environment."

The company recently delayed first delivery of the Dreamliner to the third quarter from the first.

Boeing said its fourth-quarter revenue fell 8 percent to $16.55 billion. Wall Street had expected revenue of $17.02 billion, according to Thomson Reuters I/B/E/S.

Boeing's commercial airplanes division saw fourth-quarter revenue decrease 11 percent to $8.2 billion on lower-than- expected 777 and 747 airplane deliveries.

Revenue for Boeing's Defense, Space & Security unit slipped 5 percent to $3.63 billion.

Boeing, which competes with EADS subsidiary Airbus, said this month it delivered 116 commercial aircraft in the fourth quarter, down from 122 a year ago. Aircraft manufacturers only get paid on delivery, usually at least 18 months after purchase.

Airbus sold 644 planes in 2010 -- 19 more than Boeing. For the eighth year running, Airbus also delivered more planes than its U.S. rival.

Shares of Boeing, a Dow Jones industrial average component, have risen about 30 percent since the beginning of 2010, compared with a gain of about 14 percent for the index.

(Editing by Steve Orlofsky and Maureen Bavdek)