U.S. Stocks Rise As Yields, Oil Fall

NEW YORK (MarketWatch) -- U.S. stocks rose on Monday, as a drop in bond yields, falling crude oil prices, and an upgrade of General Motors Corp. helped the market stage a rebound after a sell-off on Friday.

The Dow Jones Industrial Average was up 68 points at 13,430, as 27 of its 30 components rose, led by General Motors Corp. .

The leading U.S. automaker was upgraded to buy from neutral at Goldman Sachs, which said it was making a "tactical trading call" that shares will rise on expectations for sizable concessions from GM's unionized workers.

The S&P 500 gained 5.5 points to 1,508, while the Nasdaq Composite rose 8.9 points to 2,597.

Yields and homes

The market, which has been pressured by rising bond yields over the past few weeks, saw some relief early Monday, as yields fell back. The benchmark 10-year Treasury bond was last up 14/32 in price, while its yield , which moves inversely, rose to 5.09%.

Higher yields provide a risk-free alternative to stocks while also lifting borrowing costs for consumers and businesses.

The May existing home sales report helped lower bond yields. Sales fell 0.3% in May to a seasonally adjusted annual rate of 5.99 million from 6.01 million in April.

While sales were stronger than the 5.90 million pace expected by economists, the inventory of previously-owned homes for sale rose to the highest level in 15 years, the National Association of Realtors reported Monday.

The data confirms market expectations that the Federal Reserve, which meets on Wednesday and Thursday, will leave interest rates unchanged. Investors will still be eager to see if the committee's accompanying statement hints at whether rate increases or reductions could be in store in coming months.

Also helping stocks, crude oil prices backed off after rallying last week, as a strike in Nigeria ended. A barrel was recently down $1.30, or 1.9%, at $67.84.

Subprime, hedge fund woes on backburner

U.S. stocks took a heavy hit on Friday due to nervousness about a combination of rising Treasury yields, global interest rates and whether subprime lending woes have further to unwind. The Dow industrials dropped 185 points.

"We appear to be looking in a 'glass half full' way at what caused the market to go down 2% last week," said Art Hogan, chief market strategist at Jefferies & Co.

"Equities are trying to adjust to higher yields," he said, referring to the fact that earlier in the month the yield on the 10-year Treaury note was driven above the federal funds rate, currently pegged at 5.25%, signaling expectations of higher rates.

"The stock market is trying to learn whether this points to growth or inflation," Hogan said. "If it is being driven by growth, then it is not a negative thing for stocks."

However, the Bank for International Settlements is sounding a cautionary note, according to a report on the Web site of the U.K.'s Telegraph newspaper.

The BIS is warning that years of loose monetary policy have helped pump up a dangerous credit bubble, leaving the global economy more exposed to a slump than is generally understood.

Indeed, the equities market last week played off near collapses of two Bear Stearns Cos. hedge funds, among other factors.

Shares on the move

Dow Jones & Co. remained front and center on investors' radar screens.

According to The Wall Street Journal's online edition there were "intense" negotiations over protecting the editorial independence of the Journal. The newspaper cited people familiar with the matter. Dow Jones is the publisher of both the Wall Street Journal and of MarketWatch.

Dow Jones' stock was up 0.1% at $58.84, below the $60-a-share buyout price offered by News Corp.
and Rupert Murdoch.

Drugstore and personal-products chain Walgreen's reported a 20% increase in profit, citing strong prescription drug sales. The stock wa up 1.6% at $45.69 before the opening.

Other markets

The yen remained under pressure, although there is growing talk of a possibility that the Bank of Japan may lift rates in the near future. The dollar last was off 0.2% at 123.61 yen, as the euro fell 0.04% to $1.3461.

Commodities were backing lower in the early going, with the front-month oil contract off $1 at $68.14 a barrel and the August gold contract down $3.70 at $653.30 an ounce.

By Leslie Wines