By Donna Kardos Yesalavich and Kristina Peterson
NEW YORK (Dow Jones) – U.S. stocks edged higher Tuesday as a report showed consumer confidence rose more than expected in January, while the Congressional Budget Office said the federal government budget deficit for 2010 will be slightly smaller than 2009’s deficit.

The Dow Jones Industrial Average was up 31 points at 10228 in recent trading. Earlier in the session, the Dow had been off as much as 41 points. Travelers Cos. was the measure’s best performer, up 3.3% as the insurer’s fourth-quarter earnings jumped 60% to its highest quarterly profit since going public in 2002. American Express and Alcoa were also particularly strong, up more than 2% each.

Verizon was the Dow’s worst performer, down 2% after the telecom giant reported a fourth-quarter loss as a result of charges related to job cuts in the period. Excluding items, Verizon’s earnings met analysts’ estimates, but its revenue missed. The results weighed on rival AT&T, which fell 1.2%. Johnson & Johnson was also weak, off 1.3%.

The technology-heavy Nasdaq Composite was up 1 point. The Standard & Poor’s 500-share index was flat, with gains across its financial, consumer discretionary and energy sectors offsetting declines across telecom and health care.

In other markets, crude-oil futures and gold futures were down, but their declines pared recently from earlier in the session. The dollar was higher against the euro but lower against the yen. Treasurys edged higher, with the 10-year note up 1/8 to yield 3.615%.

Tuesday’s action came as the Congressional Budget Office said the federal government budget deficit will reach $1.3 trillion in fiscal 2010, slightly less than the $1.4 trillion it recorded in fiscal 2009.

Also lifting investor sentiment, the Conference Board, a private research group, reported a rise in U.S. consumer confidence for the third consecutive month in January. Its index of consumer confidence increased to 55.9 in January from a revised 53.6 in December, which was originally reported as 52.9. Economists had expected a reading of 54 for January.

The reports came as stocks are struggling to recover from their worst weekly drop since March. While some market watchers are fearful that the decline was just the start of a larger pullback, others–including Jay Leupp, senior portfolio manager of the Grubb & Ellis AGA Realty funds–said the decline provided some good buying opportunities.

“We’ve seen a healthy correction, and we’re still at a point where investors are buying either on dips or where they see value,” Leupp said. “We’re back to seeing good values in equity prices this last couple of days, so we’re getting a little more active here in stocks we’ve been watching.”

However, keeping any stock gains in check, global jitters were reignited Tuesday ater Standard & Poor’s Ratings Services warned that it may downgrade Japan’s sovereign credit ratings. Concerns over Chinese monetary tightening also hit markets, after several Chinese banks have reportedly ordered some branches to suspend new lending for the rest of this month. Also weighing on sentiment, the S&P Case-Shiller index showed U.S. home prices in 20 major metropolitan areas dropped 5.3% on the year.

In addition, some investors are nervous to jump into the market ahead of major political and economic events this week, including Wednesday’s Federal Reserve interest-rate decision and the president’s State of the Union address.

“For the most part this has been a pretty good earnings season, but clients, investors, they’re concerned or tentative about what’s going on in Washington and everyone’s afraid to buy into the market ahead of the State of the Union address,” said Mike O’Rourke, chief market strategist at BTIG, an institutional broker.

Among stocks in focus, Apple climbed 2.1% after the consumer electronics darling reported a stronger-than-forecast 50% profit rise during its fiscal first quarter, though iPhone shipments lagged estimates.

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