U.S. stocks rose to fresh 13-month highs on Tuesday as upbeat broker views on improving prospects for two Dow components offset disappointing holiday spending outlooks from Target and Home Depot.

Even so, the underlying tone was negative as investors fretted about the strength of the recovery and the recent rally, and more stocks fell than rose.

Weak outlooks for the key holiday season weighed on investor psychology since consumer spending accounts for about two-thirds of U.S. economic activity and is a key factor in corporate profits.

The news from retailers wasn't particularly good, said Eric Kuby, chief investment officer at NorthStar Investment Management Corp in Chicago. It seems to me the major flavor for today is once again, the market participants questioning the strength of the recovery.

The Dow Jones industrial average <.DJI> rose 30.46 points, or 0.29 percent, to close at 10,437.42. The Standard & Poor's 500 Index <.SPX> edged up 1.02 points, or 0.09 percent, to 1,110.32. The Nasdaq Composite Index <.IXIC> added 5.93 points, or 0.27 percent, to 2,203.78.

The three major U.S. stock indexes initially started lower and then spent the bulk of the session near breakeven until the last half-hour of trading, when gains in the technology and energy sectors helped spur some upward momentum.

In Nasdaq trading, shares of software maker Microsoft Corp gained 2 percent to $30 -- an 18-month closing high -- after Morgan Stanley raised its price target on the stock and said it was upbeat on the prospects for Windows 7 and the company's holiday season.

Shares of Exxon Mobil rose 0.8 percent to $75.03 after Barclays raised its recommendation on the stock to overweight from equal-weight. Both Microsoft and Exxon are components of the 30-stock Dow Jones industrial average.

But shares of Home Depot fell 2.4 percent to $26.99 after the leading U.S. home improvement chain gave a forecast that suggested weaker results at the end of the year and predicted no meaningful recovery until the second half of 2010.

Target Corp , the No. 2 U.S. discounter, forecast a holiday quarterly profit that could fall short of Wall Street's estimates, saying early November results showed tepid consumer demand.

The stock dropped 3 percent to $48.77, while the S&P consumer discretionaries index <.GSPD> shed 0.7 percent. The S&P retail index <.RLX> dropped 1.4 percent.

The consumer is a bit restrained. We're still in a very tough economy, with a 26-year high in unemployment and consumer credit being reduced. So retailers have to work really hard to get through this holiday season in a profitable fashion, added Kuby at NorthStar.

Data showing that U.S. industrial output rose less than expected in October was another headwind, overshadowing news that the Producer Price Index, a gauge of wholesale inflation, was tame last month.

With Tuesday's slim gain, the S&P 500 is up 64.1 percent from its 12-year closing low of March 9.

(Editing by Jan Paschal)