updated 11/28/2005 3:06:46 PM ET 2005-11-28T20:06:46

Wall Street took a break from its five-week rally Monday, with stocks struggling as investors weighed job cuts at Merck & Co. and a mixed picture on last weekend’s start to the holiday shopping season.

Major Market Indices

The market is coming off seven consecutive trading days of gains amid a year-end rally fueled by an improving economic landscape and mounting eagerness for strong retail sales in December.

But while some of the nation’s retailers reported a solid opening to the crucial holiday sales period, other merchants said shopper traffic tailed off once Friday’s bargains passed. Retail stocks sank despite Wal-Mart Stores Inc. and J.C. Penney Co. posting better-than-expected numbers.

Wall Street’s mood was also soured by Merck’s plan to slash 11 percent of its work force and shut five manufacturing plants by 2008 as the company struggles with legal woes over its Vioxx painkiller and faces losing patent protection for another top-selling drug, cholesterol reducer Zocor.

Sharply lower oil prices did little to energize the market. A recent slide in crude futures has tempered fears that higher energy costs would harm consumer spending this winter, but nervous investors are waiting for more data before putting money into stocks.

Despite muddled retail sales results, Steve Neimeth, senior vice president and portfolio manager for AIG SunAmerica, said the broader picture is still positive.

“Bottom line, the consumer is extremely healthy and sentiment is good,” Neimeth said. “I believe they will be spending heavily this year, and that December retail sales will beat expectations.”

The Dow Jones industrial average was wavering, lately off 22.17 points, or 0.2 percent, following seven straight up sessions. The Standard & Poor’s 500-stock index lost 7.29 points, or 0.6 percent and the Nasdaq composite index fell 19.32 points, or 0.9 percent.

Bonds advanced, with the yield on the 10-year Treasury note falling to 4.4 percent from 4.43 percent late Friday. The dollar was mostly lower against other major currencies in European trading, and gold prices climbed.

Forecasts for mild weather in the Northeast took crude futures lower.

Neimeth noted that investors may have found some weakness from declining sales of existing homes amid growing indications that the real estate market is starting to cool off. The National Association of Realtors said existing home sales sank 2.7 percent to 7.09 million in October, below economists’ forecast for 7.29 million.

“It appears we may have finally reached a peak in the housing market,” Neimeth said. “Going forward, falling home prices could be in store.”

Traders pulled back from the retail sector as they tried to make sense of mixed sales reports, though many are waiting for storeowners to release November results later this week. Wal-Mart lost 39 cents to $50.10 and J.C. Penney fell $1.01 to $53.09, while Target Corp. also sank 59 cents to $54.64.

Discount retailer Kohl’s Corp. also fell $1.92 to $47.28, and Federated Department Stores Inc. dropped $2.63 to $64.44.

Merck’s restructuring news sent shares sliding $1.33 to $29.65.

American Pharmaceutical Partners Inc. is buying its largest shareholder , American BioScience Inc., for about $4.1 billion in stock and will rename the new firm Abraxis BioScience. Combined revenue will total more than $500 million a year from sales of cancer treatment Abraxane. American Pharmaceutical sank $8.36 to $39.25.

Delphi Corp. said it would accelerate restructuring talks with former parent General Motors Corp. as it works to emerge from bankruptcy and make a deal with its unions to lower wages. GM rose 14 cents to $23.

Overseas, Japan’s Nikkei stock average surged 1.37 percent. In Europe, Britain’s FTSE 100 lost 0.84 percent, Germany’s DAX index fell 0.34 percent, and France’s CAC-40 was lower by 0.55 percent.

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