U.S. Stocks Off Lows After Shanghai Sell-off

NEW YORK (MarketWatch) -- U.S. stocks bounced back to trade mixed on Wednesday, coming off earlier pressure as investors shrugged off an overnight sell-off in Shanghai, sparked by a tripling of taxes on stock trades.

"The 6.5% spill in the Chinese stock market has spread around the globe," said Elliot Spar, market strategist at Ryan, Beck & Co.

"The overwhelming consensus is that this is a Chinese market situation and should have no impact over here," he said. "In my opinion, that is a failure to recognize how intertwined all the world stock markets have become."

The Dow Jones Industrial Average was down 4 points at 13,516, after earlier falling 65 points to a low of 13,456.

But 18 of the Dow's 30 components remained lower, led Intel Corp. , Merck & Co. Inc. and Pfizer Inc. .

Caterpillar Inc. was among the stocks bucking the trend among blue chips, rising 2.3% after competitor Joy Global Inc. issued an upbeat outlook for the coming 12 months.

Coca Cola Co. gained 0.3% after Citigroup upgraded the stock to buy from hold.

Among tech shares on the Dow, Microsoft rose 0.2%. The software giant is coming out with a new table-top computer for hotels and casinos. And International Business Machines rose 0.4%. It told the Wall Street Journal that it has spent $12.5 billion to buy back its stock in an accelerated buyback program.

The S&P 500 was up 0.1 points at 1,518, while the Nasdaq Composite eased 3.7 points to 2,568.

Trading volumes showed 538 million shares exchanging hands on the New York Stock Exchange and 746 million trading on the Nasdaq Stock Market. Declining issues beat gainers by 16 to 15 on the NYSE and by 17 to 10 on the Nasdaq.

Shanghai deja vu

Overnight the Shanghai Composite stumbled 6.5% after China's stock trades tax hike, leading to fears that, as in February, a big drop there could lead to declines elsewhere, despite the market being virtually shut to foreign investors. There were lighter losses on bourses in Tokyo and London.

Analysts said the follow-through in New York trade from Shanghai's selloff would be limited, as the U.S. market in recent weeks has become more relaxed about developments in the booming Chinese equities market.

"This is reminiscent of what happened in late February," said George Yared of Yared Investment Research, referring to a major U.S. market correction triggered by another Shanghai selloff. "There was heavy discussion then too of making taxes on stock trades more stringent."

But "what is interesting is that we saw this game already and we were victimized before," Yared said.

Even commodity markets took the Shanghai news in stride.

Gold was down $3.40 to $653.80 an ounce, amid concerns that Chinese growth and investments could wane. But the shares of metals miners were mixed, with the likes of Eldorado Gold Corp falling while some, such as Freeport McMoRan Copper and Gold advanced.

And crude futures rose 28 cents to $63.43 a barrel, bouncing back from a sell-off on Tuesday.

By sector, oil services , real estate investment trusts and financials led the gains, while semiconductors , telecoms and transportation fell.

Economy and markets

The latest ADP employment report suggested that jobs growth this month will come in below the 150,000 new jobs forecast by MarketWatch.

Investors are also eager to decipher the notes from the Federal Open Market Committee, due out at 2 p.m. eastern.

This news and weakness in global equities sparked interest in low-risk Treasurys. The benchmark 10-year Treasury note last was up 7/32 at 97-6/32 with a yield of 4.861%. Overnight there were also rallies for Japanese and German bonds.

A badly-received auction of 2-year notes on Tuesday renewed worries about foreign central banks backing off U.S. assets and sent yields rallying. There will be a Treasury auction of new 5-year notes his afternoon.

The dollar was mixed in the early going. Currencies investors are eager to see how this afternoon's FOMC minutes impact the dollar.

Deal-making

Futures market operator Intercontinental Exchange Inc. is continuing with its efforts to take over CBOT Holdings. According to the Wall Street Journal, ICE has reached a deal, valued at $665 million, that would settle a dispute between CBOT parent of the Chicago Board of Trade, and its rival, the Chicago Board Options Exchange.

That deal can go into effect only if ICE wins CBOT. Both ICE and the Chicago Mercantile Exchnage had bid for the CBOT, whose management factors the Chicago exchange.

The shareholder-advisory service Shareholder Institutional Services is urging Biomet Inc. shareholders to reject a $10.9 billion private-equity deal for the company, the Wall Street Journal reported.

Holders of the Warsaw, Ind., designer of artificial knees are set to vote June 8 on a bid by a group including Blackstone, Goldman Sachs, Kohlberg Kravis Roberts and TPG Capital.

Elsewhere, Cantor Fitzgerald is offering $9.75 a share for stock of eSpeed, which it plans to combine with BGC Partners.

Technology retailer CDW will be bought by buyout firm Madison Dearborn for about $7.3 billion.

By Nick Godt