* McDonald's stock up 1 pct, lifting the Dow
* Moody's cuts France credit rating
* Hewlett-Packard shares hit 10-year low after charge
* Housing starts rise to highest rate in over four years
* Dow up 0.1 pct, S&P 500 up 0.2 pct, Nasdaq up 0.1 pct
By Caroline Valetkevitch
NEW YORK, Nov 20 (Reuters) - U.S. stocks inched higher on Tuesday, reversing earlier declines after bargain hunters stepped in to buy beaten-down shares and offset the impact of Hewlett-Packard's accounting charge and France losing its triple-A credit rating.
The S&P 500 briefly dipped below its 200-day moving average at 1,382, but recovered to trade sligthly above the key technical level, which is seen as a support mark.
Stocks rallied for the last two days on optimism that Washington politicians could agree on a deal to avoid the U.S. "fiscal cliff." But the gains followed two weeks of sharp losses.
"We got into a very oversold condition on just about any indicator and then you had intraday reversals in just about all the indexes," said Jeffrey Saut, Raymond James Financial's chief investment strategist in St. Petersburg, Florida.
Shares of McDonald's shot up 1.3 percent to $86.11, leading the Dow industrials' slim advance.
Moody's Investors Service cut France's sovereign rating by one notch to Aa1 after the market's close on Monday, citing an uncertain fiscal outlook as a result of the weakening economy.
While the move was expected after Standard & Poor's made a similar downgrade in January, it was a reminder of the headwinds buffeting the global economy and the danger of contagion by the euro zone's debt crisis.
Hewlett-Packard Co shares tumbled 10.5 percent to a 10-year low at $11.91 as the computer and printer maker swung to a fourth-quarter loss. The company said it took an $8.8 billion charge related to its acquisition of software firm Autonomy, citing "serious accounting improprieties."
A bright spot for the economy came in data showing U.S. housing starts rose to their highest rate in more than four years in October, suggesting the housing market's recovery was gathering momentum. The PHLX housing sector index jumped 2.4 percent, led by PulteGroup Inc, up 4.8 percent at $16.67.
The Dow Jones industrial average was up 10.34 points, or 0.08 percent, at 12,806.30. The Standard & Poor's 500 Index was up 2.17 points, or 0.16 percent, at 1,389.06. The Nasdaq Composite Index was up 3.41 points, or 0.12 percent, at 2,913.48.
The S&P 500 index had fallen 5.3 percent between election day two weeks ago and the start of the rebound as angst over a possible U.S. budget deal drove investors to sell stocks and limit the impact of expected tax increases on capital gains and dividends.
President Barack Obama and congressional leaders hope to start serious negotiations after the Thanksgiving holiday on Thursday to avoid the "fiscal cliff," a series of mandatory tax hikes and spending cuts that would go into effect early next year - if a deal is not reached - and could push the U.S. economy back into recession.