NEW YORK (AP) - Wall Street pulled back Monday following Microsoft Corp.'s
decision to withdraw its bid for Yahoo Inc. and as oil prices rose to a new
record over $120 a barrel.
Microsoft had offered $47.5 billion to buy Yahoo Inc., but scrapped the bid
late Saturday after the software maker and the Internet provider could not agree
on a sale price. The failed deal came as a disappointment to Wall Street, as
merger-and-acquisition activity tends to boost shareholder value, and also
signals to the broader market that corporate America is optimistic about the
future.
A jump in oil prices raised concerns that inflation could force consumers,
who account for more than two-thirds of the economy, to cut their spending on
discretionary items. Crude oil futures for June delivery surged to a new trading
high of $120.21 a barrel on the New York Mercantile Exchange before pulling back
to settle up $3.65 at a record $119.97. The jump followed worries over supply
disruptions in areas such as Nigeria, Iran and Iraq.
"Energy is a very important piece," said Russell Croft, portfolio manager at
Croft Leominster Investment Management in Baltimore, referring to the mood of
both investors and consumers. "It's the price at the pump, it's what people read
about."
Concerns about the impact of energy prices had slipped to the background on
Wall Street in recent weeks, as investors focused more on earnings, the economy
and on what the Federal Reserve might do about interest rates. When the Fed cut
rates by a quarter point last Wednesday, it reminded Wall Street that inflation
remains a priority along with the uncertain economy.
There is a growing sense on Wall Street that the Fed is in the process of
putting its rate cuts on hold, and accelerating inflation would make such a
pause more likely.
The Dow Jones industrial average fell 88.66, or 0.68 percent, to 12,969.54.
Broader stock indicators also declined. The Standard & Poor's 500 index fell
6.41, or 0.45 percent, to 1,407.49, while the Nasdaq composite index fell 12.87,
or 0.52 percent, to 2,464.12.
Bond prices rose as stocks declined. The yield on the benchmark 10-year
Treasury note, which moves opposite its price, fell to 3.84 percent from 3.86
percent late Friday. In late trading, however, bond prices declined, and the
10-year yield rose to 3.87 percent.
Gold prices also climbed and the dollar traded mixed against other major
currencies.
John Merrill, chief investment officer at Tanglewood Capital Management in
Houston, noted that despite investors' concerns about the economy, Wall Street
has logged a sizable rebound since its March lows. He said the back-and-forth in
stocks is to be expected, particularly after recent gains.
Last week, the Dow rose 1.29 percent, while the S&P 500 advanced 1.15
percent.
"The market can only go in one direction for so long before you just have to
change," he said.
"Our idea is that we're in a long, soft patch," Merrill said. "The economic
problems we have with homebuilding and the over-leveraged consumer and the
over-leveraged banking system -- they are problems that are going to be with us
for a while."
Despite their concerns about inflation, investors briefly took some
encouragement from a key reading on the U.S. service sector. The Institute for
Supply Management said its April index of nonmanufacturing activity rose to 52
from 49.6 in March. A reading above 50 signals economic expansion; analysts had
expected the figure would come in at 49.3, according to economists surveyed by
Thomson Financial/IFR.
But the rise in oil prices still weighed on a number of sectors, including
retailers whose livelihood depends on consumers and airlines whose profits are
hurt by more expensive fuel. Macy's Inc. fell $1.21, or 4.6 percent, to $25.09,
while J.C. Penney Co. fell $1.86, or 4.1 percent, to $43.32.
Delta Air Lines Inc. fell 39 cents, or 4.6 percent, to $8.11 and Continental
Airlines Inc. declined $1.01, or 5.4 percent, to $17.78.
Meanwhile, Yahoo fell $4.30, or 15 percent, to $24.37 after Microsoft's
decision to walk away. Shares of Microsoft slipped 16 cents to $29.08.
Helping to offset some of investors' disappointment over the abandoned Yahoo
deal was a report from The Wall Street Journal that Deutsche Telekom AG is
considering a bid to buy Sprint Nextel Corp., according to people familiar with
the discussions.
Sprint rose 83 cents, or 10.5 percent, to $8.72 on the report and as the
newspaper reported that Sprint is considering spinning off its Nextel arm.
Countrywide Financial Corp. fell 62 cents, or 10.4 percent, to $5.36 after a
Wall Street analyst said Bank of America Corp. should abandon its proposed
takeover of the mortgage lender. Another analyst suggested the deal would likely
be renegotiated for a lower price.
Bank of America fell 82 cents, or 2.1 percent, to $38.97.
Declining issues outnumbered advancers by about 3 to 2 on the New York Stock
Exchange, where volume came to 3.30 billion shares, compared with 3.86 billion
shares traded Friday.
The Russell 2000 index of smaller companies fell 1.39, or 0.19 percent, to
724.35.
Overseas, Japan's and Britain's markets were closed for holidays. Germany's
DAX index rose 0.13 percent, and France's CAC-40 fell 0.13 percent.
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