By Walker Simon
NEW YORK (Reuters) - Stocks pared losses to trade little changed on Tuesday after a report showed U.S. factory activity expanded in June for the first time in five months, offsetting worries about rising oil prices.
The unexpected rise in the Institute for Supply Management's manufacturing index helped to temper oil's gaining more than $2 a barrel to $142.39.
Stocks such as airlines, transportation and energy-dependent manufacturers were hit hardest by the steady rise in oil. Aluminum producer Alcoa Inc
But financial stocks, which had been hammered over worries about credit losses, rose as investors scoured for bargains. Citigroup
The ISM said its index of factory activity rose to 50.2 last month from 49.6 in May. A number above 50 signifies expansion.
"I think the simple headline that it was above 50 was enough to spur a little bit of buying in the market," said Richard Sparks, senior equities analyst at Schaeffer's Investment Research in Cincinnati, Ohio.
However, "I think the overriding concern on oil prices and the tensions in the Middle East are going to be bigger worries. I don't think these numbers will be enough to overcome that," Sparks added.
The Dow Jones industrial average <.DJI> was down 18.32 points, or 0.16 percent, at 11,331.69. The Standard & Poor's 500 Index <.SPX> was down 1.87 points, or 0.15 percent, at 1,278.13. The Nasdaq Composite Index <.IXIC> was down 3.71 points, or 0.16 percent, at 2,289.27.
Oil rose $2.36 a barrel to $142.44 after the International Energy Agency revived concerns about long-term supply shortages. Increased tension between Israel and Iran also raised fears about disruptions in the nearer term.
The stock index for U.S. airlines <.XAL> fell 2.7 percent.
Other decliners were heavy-equipment maker Caterpillar Inc
On a positive note, shares of commercial lender CIT Group Inc
Beer, wine and spirits company Constellation Brands Inc
Alcoa fell $1.64 to $34.
(Additional reporting by Deborah Jian Lee; Editing by Kenneth Barry)