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Stock market’s merger-fueled rally fizzles

A late-day sell-off left stocks mixed at Monday’s close, as investors put aside their enthusiasm over a series of big-name acquisitions and evidence of a moderating economy and cashed in profits from an early advance.
/ Source: The Associated Press

A late-day sell-off left stocks mixed at Monday’s close, as investors put aside their enthusiasm over a series of big-name acquisitions and evidence of a moderating economy and cashed in profits from an early advance.

Reports showing an unexpected slowdown in manufacturing growth and an upswing in construction spending fed optimism about the economy’s health and a possible end to the Federal Reserve’s interest rate hikes early Monday. The early buying sent the Dow Jones industrial average up 139 points and hoisted the Standard & Poor’s 500-stock and Nasdaq composite indexes near to multi-year highs.

But the market’s momentum waned late in the day, as nervous investors chose to play it safe and take money out of stocks and bonds.

The mixed economic news nonetheless showed that the economy, while tapering, continues to move forward at a healthy pace, said Jay Suskind, head trader at Ryan, Beck & Co. That bodes well for investors anxious about indications from the Fed last week that it will keep lifting rates to restrain economic growth and inflation.

“I think it’s the same old story: The economy certainly surprises us by how resilient it is,” Suskind said, but added that most on Wall Street are focused on this Friday’s employment report.

Monday’s acquisitions were led by General Motors Corp.’s deal to sell a majority stake in its auto financing unit for $14 billion. Also, Lucent Technologies Inc. agreed to be acquired by Alcatel SA for $13.4 billion in stock.

A late-day sell-off cut into the stock market’s early gains. The Dow Jones industrial average finished the day up 35.62 points, or 0.32 percent, while the Standard & Poor’s 500-stock index was up 2.99 points, or 0.23 percent. The Nasdaq composite index, which earlier hit a fresh five-year high, was down 3.05 points, or 0.13 percent.

Investors shrugged off an up-tick in oil prices amid supply concerns related to political tension in Iran and Nigeria. A barrel of light crude rose 11 cents to $66.74 on the New York Mercantile Exchange.

Bonds extended last week’s losses, with the yield on the 10-year Treasury note edging up to 4.87 percent from 4.86 percent late Friday. The dollar was mostly lower against other major currencies.

The Institute for Supply Management said its manufacturing index for March fell 1.5 points to 55.2, versus forecasts for a one-point rise. However, the index’s prices paid component surged 4 points to 66.5, the highest level since November and an ominous sign for inflation.

Elsewhere, the Commerce Department said construction spending grew 0.8 percent in February, up from a 0.4 percent increase the month before and besting the consensus estimate of 0.8 percent.

Although Monday’s economic numbers were encouraging for a market fixated on rising interest rates, traders say they are awaiting Friday’s employment report from the Labor Department for a clearer signal of how fast the economy is expanding.

But until then, the market’s upward momentum should carry stocks higher following a decline toward the end of last month. The start of the new quarter and strength in overseas markets should also improve Wall Street’s mood, according Michael Sheldon, chief market strategist for Spencer Clarke LLC.

“We’re seeing a continuation of the trends that were generally in place through much of the first quarter,” Sheldon said, adding that April is traditionally the Dow’s strongest month of the year. “We continue to see a number of uncertainties below the surface, but investors have mostly focused on the positives.”

GM is selling a 51 percent interest in its General Motors Acceptance Corp. to an investor group led by Cerberus Capital Management, easing worries that the automaker could not find a buyer as it tries to turn around its business. GM, which also said its March vehicle sales dropped 14.3 percent, sank $1.13 to $20.14.

Shares of other major automakers were mixed following their monthly sales reports. Ford Motor Co. saw its volume decline 4.6 percent, while DaimlerChrysler AG’s Chrysler Group posted a 3 percent gain. Ford fell 19 cents to $7.77, and DaimlerChrysler added 71 cents to $58.12.

Following the combination of Alcatel and Lucent — a new name will be chosen later — the companies plan to cut about 10 percent of the total work force, or 8,800 jobs. Lucent gained 3 cents to $3.08, and Alcatel rose 81 cents to $16.21.

Verizon Communications Inc. is selling its three Caribbean and Latin American telecommunications operations to America Movil SA and Telefonos de Mexico for $3.7 billion. Verizon rose 36 cents to $34.42.

Constellation Brands Inc., the world’s biggest winemaker, advanced 20 cents to $25.25 on its deal to buy rival Vincor International Inc. for almost $1.1 billion. Constellation dropped an earlier $1 billion cash offer in December.

Overseas, Japan’s Nikkei stock average gained 1.6 percent. Britain’s FTSE 100 added 1 percent, Germany’s DAX index rose 0.9 percent and France’s CAC-40 was higher by 0.66 percent.