NEW YORK (AP) - Wall Street pulled back Monday as investors digested
Microsoft Corp.'s decision to withdraw its bid for Yahoo Inc. and oil prices
rose to a new record over $120 a barrel.
Microsoft had offered $43.7 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 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. The jump followed news of an attack on a Nigerian
oil facility.
Despite their concerns about energy prices, 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.
Russell Croft, portfolio manager at Croft Leominster Investment Management
in Baltimore, said investors are worried that the rise in oil will crimp
consumer spending, which accounts for more than two-thirds of U.S. economic
activity.
"Energy is a very important piece," he said, referring to the mood of both
investors and consumers. "It's the price at the pump, it's what people read
about."
In early afternoon trading, the Dow Jones industrial average fell 75.31, or
0.58 percent, to 12,982.89.
Broader stock indicators also declined. The Standard & Poor's 500 index fell
5.17, or 0.37 percent, to 1,408.73, and the Nasdaq composite index fell 7.83, or
0.32 percent, to 2,469.16.
Bond prices rose as stocks dropped. The yield on the benchmark 10-year
Treasury note, which moves opposite its price, fell to 3.85 percent from 3.86
percent late Friday.
Gold prices also climbed Monday, while the dollar traded mixed against other
major currencies.
In general, first-quarter earnings reports and economic data have been
coming in weak, but not as poor as many on Wall Street had braced for.
Investors have lingering concerns, however -- not only is the housing market
still weak, but commodities besides oil remain near record levels, threatening
consumers' discretionary spending and their ability to pay off debt.
John Merrill, chief investment officer at Tanglewood Capital Management in
Houston, noted that despite investors' concerns, 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."
Helping to offset some of investors' disappointment over the abandoned Yahoo
deal was a report from The Wall Street Journal, which said Deutsche Telekom AG
is considering a bid to buy Sprint Nextel Corp., according to people familiar
with the discussions.
Sprint rose 32 cents, or 4.1 percent, to $8.21 on the report.
Meanwhile, Yahoo fell $3.77, or 13.2 percent, to $24.90 after Microsoft's
decision to walk away. Shares of Microsoft rose 18 cents to $29.42.
Overseas, Japan's and Great Britain's markets were closed. Germany's DAX
index rose 0.13 percent, and France's CAC-40 fell 0.13 percent.
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