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Volume was strong for a second day as investors reshuffled their portfolios at the beginning of the year, and analysts said the attractiveness of equities was intact.

Recent stock gainers topped Tuesday's list of losers, falling as copper, oil and other commodities slipped from multiyear highs.

The S&P materials index .GSPM fell 0.5 percent and the energy index .GSPE lost 0.6 percent. Materials and energy were among the top-performing sectors in 2010.

"The S&P is pretty buoyant because of the fact that there seems to be a little bit of a renewed interest in the market," said Nick Kalivas, senior equity index analyst at MF Global in Chicago.

"I think it's subtle, but I do think it's present. How long it lasts is obviously the million dollar question."

Shares of grocer Supervalu Inc (SVU.N) fell more than 6 percent and was the top percentage decliner on the S&P 500 after Morgan Stanley told investors to cut holdings in the stock, saying rising food costs will crimp margins. Safeway Inc (SWY.N) and Whole Foods Market (WFMI.O) also slid.

The Dow Jones industrial average .DJI added 20.43 points, or 0.18 percent, to 11,691.18. The Standard & Poor's 500 Index .SPX dipped 1.67 points, or 0.13 percent, to 1,270.20. The Nasdaq Composite Index .IXIC was off 10.27 points, or 0.38 percent, to 2,681.25.

The S&P and Nasdaq pared losses modestly and the Dow edged higher following minutes from the Federal Reserve's December policy meeting that showed officials felt the U.S. economic recovery was still weak enough to warrant monetary support in the form of bond purchases by the Fed.

The market was also supported by strength in defensive shares, including the utilities and telecom sectors. The defensive tone aided blue chips as the Dow ended higher.

The market's weakness followed a strong start to the new trading year on Monday. The Dow and S&P 500 recently hit two-year highs as data pointed to a U.S. recovery.

While many analysts see another year of gains for the S&P 500, Morgan Stanley offered a contrarian view, forecasting the S&P 500 would end the year lower.

Shares of Supervalu dropped 6.3 percent to $9.00. Safeway was down 3.8 percent at $21.64, and Whole Foods fell 3.4 percent to $49.04.

About 8.38 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, just below last year's estimated daily average of 8.47 billion.

Declining stocks outnumbered advancing ones on the NYSE by 1,889 to 1,103, while on the Nasdaq, decliners beat advancers 1,805 to 844.

(Reporting by Leah Schnurr; Editing by Kenneth Barry)

The men are Walter Shimoon, a former Flextronics employee in California accused of leaking secrets about Apple Inc's iPad ahead of its launch; James Fleishman, who is on leave from his sales job at the California-based research firm Primary Global Research; and Mark Longoria, a Texas-based supply chain manager for Advanced Micro Devices.

They were all arrested on December 16 and freed on bail as part of a probe by federal prosecutors in New York that began at least three years ago, but has been pushed forward by authorities trying to flex their muscles after failing to win any major convictions tied to the 2008 financial crisis.

The arrests of seven people in November and December focused on the use of so-called "expert network" firms that connected hedge funds with employees at various technology companies and in one instance, a drugmaker.

Prosecutors also revealed in December that a former Dell Computer employee, Daniel DeVore, and a former independent consultant in California to hedge funds, Karl Motey, were cooperating in the investigation and had pleaded guilty to conspiracy and securities fraud charges.

In Manhattan federal court on Tuesday, U.S. Magistrate Judge James Francis approved bond that included some travel restrictions for Shimoon of $150,000, for Fleishman of $700,000 and Longoria of $50,000. Their next appearance was scheduled for February 3.

Their lawyers declined to comment.

Legal experts say those arrested on allegations they shared confidential corporate information may have a window to negotiate favorable terms with U.S. prosecutors before they are formally indicted.

In California on Monday, a federal magistrate judge declined to grant bail to Winifred Jiau, who prosecutors accuse of selling inside information about publicly traded companies while consulting for Primary Global Research. The government considers her a flight risk.

Jiau is accused of providing information about computer chipmakers Marvell Technology Group Ltd and Nvidia Corp to hedge funds, including the founder of a New York fund that prosecutors did not identify.

The case is USA v Shimoon et al, U.S. District Court for the Southern District of New York, No. 10-mj-2823.

(Reporting by Grant McCool, editing by Dave Zimmerman)

The December results capped a year of gradual recovery for the industry overall that is expected to continue in the new year.

GM said sales rose 16 percent in its four remaining U.S. brands in December from a year earlier, led by percentage gains in Buick and GMC. Retail sales to consumers jumped in the month and it reduced sales to rental car companies.

GM said results were led by a 42 percent jump in sales of its crossovers in December from a year earlier. The automaker also sold 29 percent more full-sized pickup trucks, most of those 2011 model year vehicles that command higher prices.

A year after its 2009 bankruptcy, and less than two months after its largest-ever IPO, GM remains the top-selling automaker in the United States. GM's U.S. sales rose 6.3 percent to 2.2 million in 2010 from the prior year.

Economists surveyed by Reuters expect automakers to report sales at a 12.3 million vehicle annualized rate in December, which would be the third consecutive month above the 12 million unit annualized rate followed by economists.

Ford Motor Co, Toyota Motor Corp, Honda Motor Co, Chrysler Group LLC and Nissan Motor Co are expected to report U.S. sales results later on Tuesday.

Toyota is expected to be the only top-selling automaker to report a U.S. sales decline for December.

Automakers have expected the U.S. market to show gradual growth while the economy shows some signs of stability with nagging concerns about slow job creation and persistent weakness in the housing market.

Overall, U.S. auto sales are expected to come in at about 11.5 million light vehicles in 2010. Industry tracking firm J.D. Power and Associates expects U.S. auto sales to rise to about 13 million vehicles in 2011.

GM said on Tuesday that it expects 2011 U.S. auto industry sales of 13 million to 13.5 million vehicles including medium and heavy trucks.

The auto industry snapped a four-year streak of declining annual sales in 2010 and growth in 2011 beyond expectations could force automakers to deal with capacity constraints, a luxury of a problem given recent years.

GM already has been adding capacity for strong-selling SUVs including the Chevy Equinox and GMC Terrain.

Growth is expected to stay strong in developing auto markets over the next several years including China and India.

Car sales in India were reported strong in December with Fitch expecting sales growth of up to 15 percent in 2011 driven mainly by a growing middle class and more financing opportunities.

The Commerce Department said on Tuesday orders for manufactured goods increased 0.7 percent after dropping a revised 0.7 percent in October.

Economists polled by Reuters had forecast factory orders slipping 0.1 percent in November from a previously reported 0.9 percent decline in October. Orders have risen in four of the last five months.

Manufacturing has been the star performer during the recovery from the worst recession since the 1930s and continues to expand. Factories appear to be ramping up activity to meet a pickup in demand from consumers and businesses.

Analysts have forecast economic growth at an annual pace of between 3 percent and 3.5 percent in the fourth quarter after a 2.6 percent expansion in the third quarter.

U.S. financial markets had little reaction to the data. Stocks were little changed as optimism over the economic outlook was offset by a decline in consumer stocks.

U.S. Treasury debt prices edged higher The euro climbed to a three-week high against the dollar.

On Monday the Institute for Supply Management said its index of national factory activity climbed to a seven-month high in December, hoisted by sturdy gains in new orders and production.

The Commerce Department report showed orders excluding transportation increased 2.4 percent in November, the highest since March, after a 0.1 percent gain the prior month.

Unfilled orders at factories increased 0.6 percent in November after rising 0.7 percent the prior month. Shipments increased 0.8 percent, rising for a third consecutive month, while inventories gained 0.8 percent after rising 1.1 percent in October.

The department revised durable goods orders for November to show a much smaller 0.3 percent fall rather than the previously reported 1.3 drop. Excluding transportation, orders for durable goods increased a bigger 3.6 percent in November instead of 2.4 percent.

Orders for non-defense capital goods excluding aircraft, seen as a measure of business confidence, increased 2.6 percent after 3.2 percent decline in October.

(Reporting by Lucia Mutikani; Editing by Neil Stempleman)

BP shares were up 5.6 percent to 491.7 pence by 1351 GMT (8:51 EST).

The Daily Mail newspaper, citing sources close to the Anglo-Dutch group, reported Shell weighed an opportunistic bid for BP as crude gushed into the Gulf last summer, but was discouraged by the potentially uncapped legal liabilities.

The newspaper said Shell could yet bid for BP if another suitor emerged but Europe's largest oil company by market value was unlikely to be the "first mover" for number two, BP.

Dealers and analysts including Mic Mills, head of electronic trading at ETX Capital, said BP was also being boosted by comments late on December 31 from the lawyer running BP's gulf oil spill compensation fund that suggested damages payments could be half the expected level.

Ken Feinberg, the independent administrator of the $20 billion fund set up by BP told Bloomberg Television about half the fund's assets should be adequate to cover claims for economic losses.

One dealer said the news reports focused minds on the fact BP shares were cheap compared to rivals. "BP remains cheap and vulnerable at these levels but I do not think a bid is likely."

BP shares trade on a price-earnings ratio of 6.5 times, consensus 2011 earnings, while Shell trades at 8.9 times, partly reflecting the fact BP's actual earnings could be far lower if it was found to have been grossly negligent in causing the oil spill which would boost legal costs and fines.

However, Feinberg's comment highlighted how the picture could also be brighter than the company has predicted.

The reports come ahead of a final report, to be released January 11, by the National Commission on the BP Deepwater Horizon Oil Spill, which was convened by President Barack Obama to uncover what led to the U.S.'s worst ever oil spill.

Comments by Commission members and documents previously released by the Commission suggest the report will be highly critical of BP, and could lead the way to multi-billion dollar federal fines.

Analysts and industry sources said during the crisis last summer it was likely that both U.S. oil giant Exxon Mobil and Shell -- the only companies considered large enough to mount a bid -- would run some calculations on a possible bid for BP.

However, the two notoriously conservative companies were seen as likely to be discouraged by the open-ended nature of BP's liabilities.

Now BP's shares have rebounded 65 percent from their June low at 296 pence, to give BP a market value of around $140 billion, a bid would be much harder to mount, especially for Shell which is worth over $210 billion.

Exxon has a market value of almost $370 billion.