Stocks rally, but shares of Facebook weigh

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A trader works on the floor of the New York Stock Exchange.

By msnbc.com news services

Wall Street rallied Tuesday on renewed hopes Greece will stay in the euro zone, but indexes cut some of their gains as Facebook hit a new low.

Shares of the social network slid below $30 to a new low on Tuesday as nervous investors fled the company's shares, concerned about its long-term growth prospects and an initial offering price that in retrospect may have been too rich.

Shares of Facebook closed the day down 10 percent at just below $29. The eight-year-old company, which began life in Mark Zuckerberg's dorm room, has now shed more than $20 billion in value since its controversial and glitch-ridden market debut at $38 on May 18.

The stock fell on talk Facebook was in discussions to buy Oslo-based Opera Software. Analysts said competition from Google Inc and others could push the price tag of any deal above $1 billion. Shares of the social networking giant have lost about a third of their value since going public earlier this month.

The Dow Jones industrial average closed the day up 126 points, having risen as much as 156 points earlier in the session.

In Europe, Greek election polls pointed to support for pro-bailout parties in June 17's elections, helping to calm fears Greece would leave the euro zone and threaten more turmoil in the financial system.

"There's increasing hope that the more conservative party will win out in Greece, which is enough to spur some buying today," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

He said stocks' rise earlier of 1 percent may have been overdone.

"Since the market seems subject to the news 'de jour' from Europe, our midday pullback seems rational. I couldn't account for why we were up so much before," he said.

In a negative turn for the euro zone, Egan-Jones Ratings cut Spain's credit level for the third time in less than a month as the country's weak banks continue to worry investors.

Investors cited possible new stimulus from China for Wall Street's gains. The Shanghai Securities News, citing unnamed sources, said China's biggest banks appeared to have accelerated lending as Beijing starts to fast-track its approval of infrastructure investments.

Investors shrugged off a private sector report which showed U.S. consumer confidence unexpectedly cooled in May, falling to the lowest level in four months as Americans became more pessimistic about the job market and economic outlook. The report is one of the first in an abbreviated week heavy on economic data, culminating in Friday's payrolls report.

U.S. markets were closed on Monday for the Memorial Day holiday.

The S&P/Case Shiller composite index of U.S. single-family home prices edged 0.1 percent higher in 20 metropolitan areas in March on a seasonally adjusted basis, falling short of economists' forecasts for a gain of 0.2 percent. However, it was the second consecutive month of gains which could indicate stabilization in the housing market.

Reuters contributed to this report.

If the stock wasn't volatile enough since the IPO, investors can now trade options in Facebook, reports CNBC's Kayla Tausche.

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