NEW YORK (MarketWatch) -- U.S. stocks were mixed on Thursday, with rising bond yields and falling energy shares offsetting a surge in hotel stocks, after Blackstone's $26 billion deal to buy Hilton Hotels Corp. fueled take-over speculation in the sector.
Market activity remained subdued with many traders taking time off after the Independence Day holiday on Wednesday.
"We're just seeing the 10-year note selling off pretty good and that's being mirrored in the stock market," said Kevin Kruszenski, head of trading at KeyBanc Capital. "We're seeing the repricing of risk in the interest rate market spilling over into the equity market."
The Dow Jones Industrial Average was down 40 points at 13,539, as 22 of its 30 components retreated. General Motors Corp. led the way down, losing 3.6%.
Bear Stearns downgraded GM to peer perform from outperform Thursday, noting the stock is up 31% since bottoming on May 10.
On Tuesday, GM posted a 21.3% decline in June sales of cars and trucks, much worse than the 8% decline expected by analysts polled by Thomson Financial.
The S&P 500 fell 3.3 points to 1,521, while the Nasdaq Composite fell 2.1 points to 2,647. Technology shares remained supported by Apple Inc. , which continued its latest surge after the release of the iPhone less than a week ago.
Trading volumes were light, showing 894 million shares exchanging hands on the New York Stock Exchange and 1.1 billion trading on the Nasdaq stock market. Declining issues topped gainers by 19 to 12 on the NYSE, and by 4 to 3 on the Nasdaq.
"With many people being away and trading volumes being low, that can exacerbate moves one way or the other," Kruszenski said.
Private equity takes on hotels
The main excitement of the day came from the hotels sector, which soared amid take-over speculation.
Hilton Hotels Corp. shares surged 26%. Late Tuesday, Blackstone Group said it will buy the hotel chain for $47.50 a share, which represents a 40% premium over Monday's closing price and or 32% over Tuesday's close.
The deal has generated speculation about what other hotel chains are takeover targets. On Wednesday in London trade, InterContinental Hotels and Accor jumped higher.
On Thursday, the Wall Street Journal online reported that there is speculation that Marriott International Inc. and Starwood Hotels & Resorts Worldwide Inc. are possible takeover candidates.
Also in focus, leveraged-buyout giant Kohlberg Kravis Roberts joined the growing list of private-equity firms hoping to be traded in the public market late Tuesday, with a widely anticipated filing to raise $1.25 billion through an initial public offering.
By sector, oil services , banks and broker/dealers led the declines, while computer technology and telecoms and real estate investment trusts were among the advancing sectors.
The energy sector was weighed down as crude oil prices, which earlier topped $72 a barrel, reversed course after weekly data showed rising inventories. A barrel recently fell 10 cents to $71.31 a barrel.
Investors also warily eyed bond yields, which rose again above 5% after falling back in recent sessions. Higher bond yields create a risk-free alternative to stocks, while also lifting borrowing costs for consumers and businesses.
The benchmark 10-year Treasury note last was off 21/32 at 95-5/32 with a yield of 5.125%.
U.S. bond prices fell back, sending yields higher Thursday, after the Bank of England Thursday lifted its key rate to 5.75%, contrasting with the U.S. fed funds rate of just 5.25%.
The European Central Bank left rates unchanged, but is widely expected to put in place more rate hikes later this year.
Bonds, which lose value when inflation rises, also came under pressure after two new reports suggested a healthy labor market. The ADP employment report, a measure of jobs cration in the private sector, said 150,000 new non-government jobs were created in June, marking the fastest growth rate in seven month.
The report would suggest hints that the nation's nonfarm payrolls, including government and private jobs, rose about 175,000 in June after adding in government jobs. The jobs report is due at 8.30 a.m. Eastern on Friday.
The MarketWatch forecast, based on a poll of economists, is that the economy created 130,000 new jobs last month, which would be down from 157,000 in May.
Separately, the Labor Department reported that initial claims rose by 2,000 in the latest week to 318,000, a level that is consistent with health jobs growth.
Chemicals group Huntsman Corp. said Wednesday it received a private-equity firm made a cash buyout offer of about $6 billion that trumps last week's bid from Dutch group Basell.
A Coca-Cola Co. spokesman said Wednesday the company is looking into buying Cadbury Schweppes PLC's Snapple iced tea brand or building its own tea brand.
Bank of New York Mellon agreed to buy out ABN Amro's 50% stake in its global custody joint venture for an undisclosed price.
The British pound remained near a 26-year high after the Bank of England's latest rate hike. The dollar gained ground against the euro, after the ECB left rates unchanged, even as it layed the groundwork for more rate hikes by the end of the year.
Gold fell, tracking crude oil prices lower. The August contract lost $5.30 to $650.10 an ounce.
By Nick Godt