U.S. Stocks Turn Lower As Yields Rise

NEW YORK (MarketWatch) -- U.S. stocks turned lower on Wednesday, as bond yields reversed course and advanced, offsetting enthusiasm over blow-out earnings from Wall Street firm Morgan Stanley and a $22.5 billion share buy-back from Home Depot Inc.

The Dow Jones Industrial Average was down 14 points at 13,619, as 17 of its 30 components advance, led by the likes of Boeing Co. , General Motors Corp. , and United Technologies Corp. .

Leading the gains among blue chips, shares of Home Depot surged 6.1% after the home-improvement announced it would buy back up to $22.5 billion of its own shares.

The S&P 500 index fell 2.98 points to 1,530, while the Nasdaq Composite fell 4.9 points to 2,621.

Higher bond yields have pressured the stock market over the past couple of weeks, as they provide a risk-free alternative to stocks, while also raising borrowing costs for consumers and businesses.

Since last week, however, the bond market has been regaining some ground, sending yields lower and lifting the stock market.

"Interest rates moving back down closer to 5% is a big part of the story, helping to explain why we're seeing more money flows into U.S. equities over the past week," said Owen Fitzpatrick, head of the U.S. equity group at Deutsche Bank.

On Wednesday, however, the benchmark 10-year Treasury bond reversed early gains and was last down 6/32 to 95 9/32, yielding 5.127%.

Earnings

Investors are starting to monitor earnings, which are starting to trickle through before the official reporting season begins in July.

Shares of FedEx Corp. rose 1.8% after the company reported a 7% quarterly profit rise, helped by a settlement with Airbus over a cancelled order for the A380 superjumbo.

On the downside, Circuit City slightly after it reported, as expected, a quarterly loss, following disappointing results from rival Best Buy Co. Inc. .

Brokers in focus

Brokers, which often lead the financial sector and the broad market, got a boost after Morgan Stanley said second-quarter earnings were up 40% from the year earlier, widely beating analysts estimates. Its shares gained 2.2%.

Curbing enthusiasm for the sector, The Wall Street Journal reported that two big hedge funds run by Bear Stearns were close to being shut down as a rescue plan fell apart. Shares of Bear Stearns dropped 1.1%.

Merrill Lynch & Co. , one of the hedge funds' lenders, said it would move to seize collateral -- much of it mortgage-backed debt -- from the two funds and sell it, according to documents reviewed by the newspaper.

At the same time, the funds' managers worked with a handful of other key lenders, including Goldman Sachs Group Inc. and Bank of America Corp. , to pay off the funds' $9 billion in loans, the Journal reported, citing a person familiar with the matter.

Other markets

Crude-oil futures were up 5 cents at $69.15 a barrel. Weekly energy inventory data is due out at 10:30 a.m. Eastern.

The dollar was up against the euro and the yen, pressuring gold futures, which fell $3.50 to $658.40.

Dallas Fed President Richard Fisher is due to talk about the regional Texas economy, and Treasury Secretary Henry Paulson is due to testify in front of a House panel about China's currency.

By Nick Godt