U.S. Stocks Turn Lower As Treasury Yields, Crude Futures Rise

NEW YORK (MarketWatch) -- U.S. stocks traded modestly lower Monday, in a break from the rally of late last week, although prices drew some support from deal-making news, including 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 nervously eyed rising Treasury yields and crude-oil futures, according to Robert Pavlik, chief investment officer at Oaktree Asset Management.

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.

The Dow Jones Industrial Average was down about 18 points at 13,620 in morning action, while the S&P 500 fell 2 points to 1,530 and the Nasdaq Composite dropped nearly 4 points to stand at 2,623.

Market breadth showed eight rising shares for every seven on the decline on the New York Stock Exchange, and 15 Nasdaq stocks rising for every 11 losing strength.

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.

Also on the move, shares of Bear Stearns were 2.2% lower at $146.78.

The Wall Street Journal reported that a group of hedge-fund managers at the firm are trying to line up new investors or lenders to keep going a fund invested in a number of assets linked to the troubled subprime-mortgage sector.

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 activity. Thfear 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 Nick Godt