"There's a lot of [mergers and acquisitions] activity out there, and it's an underlying support for the market," said Jay Suskind, director of trading at Ryan Beck & Co. "But we're trading sideways because there doesn't seem to be that much news and no macro economic data to guide us."
The Dow Jones Industrial Average gyrated between positive and negative territory during the whole session, even hitting a record intraday high of 13,586. But it fell 2.9 points to close at 13,539.
Gains were seen in shares of Caterpillar Inc. , and Merck & Co. Inc. , but blue chips were weighed by the likes of Home Depot Inc. , Honeywell International Inc. , JP Morgan Chase & Co. and Microsoft Corp. .
"We're coming up on a three day holiday weekend," said Barry Ritholtz, chief market strategist for the Maxim Group, referring to the upcoming Memorial Day weekend. "There's less volume today than yesterday and it's going to keep going down."
"This is one of those 'let's get through the week and get down to the beach' type of action," Ritholtz said. "It's hard to read anything into it."
Intel Corp. rose 1.6% after it agreed to sell its money-losing NOR flash chip business into a new partnership with STMicroelectronics and Francisco Partners.
The S&P 500 dropped 0.9 points to 1,524. On Monday, the broad index briefly traded at 1,529, two points above its all-time closing high of March 2000, before closing at 1,525.
The Nasdaq Composite rose 9.2 points to close at 2,588. It jumped to a six-year high on Tuesday, but the tech-heavy index remains 50% below its record high of 5,048, also reached in March 2000.
Trading volumes showed 1.5 billion exchanging hands on the New York Stock Exchange and 2.0 billion trading on the Nasdaq. Advancing issues topped decliners by 17 to 14 on the NYSE and by 9 to 5 on the Nasdaq.
By sector, airlines , real estate investment trusts , and biotechnology led the gains, while gold , oil services and banks fell.
MGM Mirage jumped 27% to close at $79.98. Billionaire Kirk Kerkorian's firm Tracinda Corp. said it's in talks to buy two of MGM's best-known Las Vegas landmarks, the Bellagio and CityCenter.
Elsewhere, subprime mortgage lender Fremont General said it's proposing to sell its commercial real estate lending business and outstanding loan portfolio to iStar Financial for $1.9 billion.
Whole Foods Markets extended its tender offer for Wild Oats Markets to June 20 from May 22. Whole Foods agreed to buy Wild Oats for roughly $565 million. It noted that members of the Federal Trade Commission staff voiced concerns about perceived anticompetitive effects. The FTC hasn't decided whether to challenge the deal.
Harbinger offered to buy 40.8 million shares it doesn't already own in OpenWave Systems for $8.30 a share. The fund manager plans to recommend replacing the company's management and board and then buying BridgePort.
China takes center stage
With no key economic reports Tuesday, markets will be paying close attention to talks between U.S. Treasury Secretary Henry Paulson and Chinese government officials. China last week widened the daily trading band for the yuan against the dollar in what many saw as a symbolic gesture.
The Chinese government also in an unprecedented move said it would put $3 billion of its massive foreign exchange holdings to work by investing in The Blackstone Group, a leveraged buyout firm preparing an initial public offering.
Investors also welcomed crude oil falling back below $66 a barrel, a level it topped on Monday. Crude futures had rallied as violece in Nigeria, Lebanon and Israel, along with concerns over supply led oil to a three-session win of 6%. On Tuesday, crude fell $1.30, or 2%, to end at $64.97 a barrel.
"The focus on M & A activity and global growth outweighed the rally in crude," said Marc Pado, market strategist at Cantor Fitzgerald. "However, an appreciation of the dollar, should it persist, could weigh on those large-cap multinational stocks, which have led this bull market."
Amid a slowing U.S. economy, investors have piled into the stocks of multinationals which derive profits overseas and benefit from a weaker dollar when they convert earnings.
The dollar was nearly flat against key rivals amid a dearth of economic data.
Gold fell slightly, along with crude oil. Gold for June delivery dropped $3.90 to close at $659.90 an ounce.
Treasury bonds fell back, sending yields higher. The benchmark 10-year Treasury bond fell 10/32 to end at 97 14/32, yielding 4.829%.
After the closing bell, Computer Sciences , Medtronic and Analog Devices are due to report results.
Pacific Sunwear , the teen-apparel retailer, said first-quarter sales surpassed expectations.
Dynegy dropped 3.3% after Chevron said it would sell 96.9 million Class A shares in an underwritten offering.
Staples dropped 2.4%. It reported a 12% profit rise on 8% sales growth in the first quarter, helped by sales of laptop computers.
Tech Data reported a 23% profit decline but 9% sales growth, while Autozone reported a 5% profit rise on 4% sales growth.
By Nick Godt