U.S. Stocks Mixed As Yields Rise After Jobs Report

NEW YORK (MarketWatch) -- U.S. stocks were mixed and little changed on Friday, as investors reacted to a rise bond yields following news of healthy jobs growth in June.

With many traders absent for the week of the U.S. Independence Day holiday, market activity remained subdued.

The Dow Jones Industrial Average was up 4.2 points at 13,569, as 14 of its 30 components advanced.

Leading the gains among blue chips, Alcoa Inc. gained 1.5% after a report that Rio Tinto Plc is considering a bid for Alcan Inc.. Alcoa has made a hostile bid for Alcan.

Microsoft Corp. dropped 0.1%. The software giant will take a charge of up to $1.15 billion, due to an expanded warranty program for what it called an "unacceptable" number of repairs required for its Xbox video game system.

The S&P 500 fell 1 point to 1,524, while the Nasdaq Composite dropped 1.1 points to 2,655.

Trading volumes showed 193 million shares exchanging hands on the New York Stock Exchange and 310 million on the Nasdaq stock market. Declining issues topped gainers by 4 to 3 on the NYSE and by 13 to 11 on Nasdaq.

Jobs lift rates, pressure stocks

A stronger-than-expected jobs report for June, which included upwards revisions of previous months, put upward pressure on bond yields, a negative for the stock market.

In recent action, the benchmark 10-year Treasury bond was down 13/32 at 94-21/32, lifting its yield to just below 5.2%.

Peter Cardillo, chief market economist at Avalon Partners, said that an uptick in hourly wages, with its inflationary potential, was "a red flag for the markets."

"I think the backup in Treasury yields was due to the inflation component," he said. "The backup in yields spooked the stock market, but it could recover, later,"

Recent signs of an uptick in a still-slowing U.S. economy, along with evidence of global growth, has put pressure on bond prices, which lose value when inflation rises. When bond prices fall, their yields increase, making bonds more attractive as a risk-free alternative to stocks.

Higher yields also lift borrowing costs for consumers and businesses.

The economy added 132,000 jobs to nonfarm payrolls in June, while the unemployment rate remained at 4.5%, the Labor Department reported.

The payroll gains for June were very close to the 130,000 forecast in a survey of economists by MarketWatch, but big revisions in April and May -- totaling 75,000 -- put total employment above expectations.

"At this pace, payroll growth is running very close to the 12-month trend in labor force growth, hence the stable unemployment rate," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

Until that changes, the Federal Reserve "will fret that the low unemployment rate poses an inflation threat, even though core inflation is plunging and wage gains leveled off a year ago, and they will sit tight," he said.

July starts on a mixed note

On Thursday stocks already gave a mixed performance, with General Motors Corp. pulling the Dow Jones industrials to an 11-point loss after a broker downgrade. But the S&P 500 rose a half-point and the Nasdaq Composite rose 11 points, with hotels rallying on the $26 billion offer for Hilton Hotels made by Blackstone.

Stocks in motion

Shares of eye care products maker Bausch & Lomb Inc. were in play. Advanced Medical Optics Inc. offered to buy the company for $4.3 billion, or $75 a share in cash.

Motorola Inc. will take a $101 million charge before tax related to previously announced layoffs as the company looks to find a phone line as popular as its Razr line.

Royal Dutch Shell and BP plc rose after being upgraded to buy from Deutsche Bank, which also lifted price targets for both oil giants.

Newmont Mining Corp. will take a non-cash impairment charge of roughly $1.7 billion in the second quarter, in connection witits decision to discontinue its merchant banking segment. It also plans to eliminate its entire 1.85 million-ounce gold hedge position.

The Wall Street Journal's online edition is reporting that the Chicago Mercantile Exchange Holdings Inc. is increasing its bid for CBOT Holdings Inc. For the third time, in an effort to secure a winning vote Monday for the deal from shareholders of the Chicago Board of Trade parent. Under the new terms, CME would offer CBOT 36.2% of a combined company, up from 34.6% before.

The move comes as some CBOT shareholders have said they would vote against the deal.

Other markets

The dollar benefited from the report as higher Treasury yields and the possibility of a higher fed funds rate would make the dollar more attractive against other major currencies.

Gold futures were dented by the dollar's gains. The August gold contract last was down $1.40 at $649.20 an ounce.

Crude futures gained nearly 1%, or 74 cents, to $72.55, as investors tracked news of refinery outages and unrest in Nigeria.

By Nick Godt