U.S. Stocks Flat; Subprime Worries, Yields, Crude In View

NEW YORK (MarketWatch) -- U.S. stocks traded at almost flat levels Monday, in a break from the rally of late last week, although prices drew some support from a report that BHP Billiton is planning a bid for blue chip Alcoa Inc.

The major indexes opened higher, then gave back most of their gains, as investors behaved cautiously in the face of rising Treasury yields and crude-oil futures, according to Robert Pavlik, chief investment officer at Oaktree Asset Management.

New concerns about subprime lending added to the dour tone.

The Dow Jones Industrial Average was down 7 points at 13,631.50, while the S&P 500 fell 0.02 point to 1,532.89 and the Nasdaq Composite dropped 1.45 point to 2,625.26.

Rising and falling shares were in roughly equal balance on the New York Stock Exchange, while there were 14 Nasdaq stocks falling for every 13 losing strength.

Analysts said the market could be in for some rather tepid price action, following the dramatic price swings seen recently. But the trading backdrop remains constructive.

"Stocks continue to plow through any news that comes their way -- neither good nor bad will keep prices down for long," said Paul Nolte, director of investments at Hinsdale Associates.

Worries about the subprime sector were back in focus after a Wall Street Journal report that a group of hedge fund managers at Bear Stearns are trying to line up new investors to keep a fund invested in subprime assets afloat. Shares of Bear Stearns were 2.2% lower at $146.78.

Shares of Alcoa rose 2.1%. A report in The Times [of London] newspaper said BHP Billiton Ltd. is reviewing plans to make an offer for the aluminum producer.

Boeing Co. was in focus as the Paris Air Show began, its stock down 0.6% at $97.63.

The aerospace giant inked two smaller deals for its jets, while rival Airbus won orders from Middle Eastern airlines Qatar Airways and Emirates as well as US Airways .

Rounding out the blue chips, Wal-Mart Stores Inc. nosed 0.1% higher. The giant retailer has asked a state court in Michigan to dismiss the lawsuit filed by fired advertising executive Julie Roehm, contending that she lives in Arkansas.

Among technology shares, Google Inc. saw its shares rise 1.7% to $514.51. Ebay Inc. said it expects to keep advertisements off Google's search engine for about a week, as it tests how effectively they drive visitors to its auction site and produce sales.

Yields on back burner?

Stocks rallied over the course last week, as investors cheered economic data pointing to tame inflation, which helped to contain a surge in bond yields. Higher bond yields provide an attractive alternative to riskier bets in the stock market, while also lifting borrowing costs for businesses and consumers.

Treasury prices opened higher, then gave up their gains, ahead of data that might point to further weakness in housing. The benchmark 10-year Treasury bond was down 1/32 at 94 28/32, while its yield rose to 5.182% from 5.17% at Friday's close.

In energy trading, the July crude futures contract turned higher in midmorning, stepping up the pressure on stocks. The contract last was up 0.6% at $68.41 a barrel, pressured by worries about a threatened strike by Nigerian oil workers.

The BBC is reporting that militants are holding an oil station in Nigeria's Delta region.

Gold was rising as well, as the August futures contract gained 0.3% to $660.50 an ounce.

Deal-making

After being eclipsed by rising bond yields in recent weeks, mergers and acquisitions returned as a catalyst for the market.

Yields and deals, meanwhile, are not unrelated.

"The enthusiasm for lower rates has less to do with the odds of a rate cut, and much more to do with 'borrowing costs,' " said Marc Pado, chief market strategist at Cantor Fitzgerald, in a note. "This bull market has been fueled by M&A activiy. The fear is that higher rates might choke off borrowing and stem the tide of stock being taken private."

In another deal-related development, shares of Dow Jones & Co. , publisher of this report, lost 0.2%. General Electric Co. and Pearson , publisher of the Financial Times, are in talks about potentially making a joint bid for the publishing company, according to The Wall Street Journal.

Such a bid would rival the $5 billion, $60-a-share proposal made by News Corp.
to acquire Dow Jones, whose flagship publication is the Journal.

Elsewhere, Nymex Holdings fell 1.6% after the Chicago Mercantile Holdings said it's not in talks to buy the New York commodities exchange.

By Leslie Wines