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Stocks struggle despite more takeover talk

Wall Street ended an erratic session little changed Tuesday, as investors upbeat about the latest round of takeover activity remained hesitant to take the market higher ahead of new economic data.
/ Source: The Associated Press

Wall Street ended an erratic session little changed Tuesday, as investors upbeat about the latest round of takeover activity remained hesitant to take the market higher ahead of new economic data.

While stocks moved sideways, Treasury yields rose to a three-month high.

Investors have viewed acquisitions as a sign corporate executives are comfortable with the economy. However, stocks failed to gain much momentum as several deals were announced Tuesday, including billionaire investor Kirk Kerkorian’s plans to buy the Bellagio Hotel & Casino from MGM Mirage Inc.

“There’s no real drivers out there, and what we’re waiting for is some more economic data,” said Todd Salamone, director of trading at Schaeffer’s Investment Research in Cincinnati. “We’re right around the closing highs of 2000, so there is some hesitancy at those levels for the time being. It is a short term bump in the midst of an ongoing uptrend.”

Further direction might come Thursday, when the Commerce Department reports on durable goods for April. The report could offer insight into the health of consumer spending, which accounts for two-thirds of U.S. economic activity.

With Tuesday bereft of major economic reports, Wall Street was watching talks between U.S. and Chinese government officials about trade and foreign exchange policy. Chinese stocks rose to a fresh record high for the second day in a row Tuesday, as investors there were encouraged by expectations for a stronger yuan and robust housing demand.

The Dow Jones industrials fell 2.93 points, or 0.02 percent, while the broader Standard & Poor’s 500-stock index slipped 0.98 point, or 0.06 percent. The index, considered by market professionals as the best indicator of stock performance, passed its record close of 1,527.46 on Monday and again Tuesday for the first time since 2000. However, the S&P remains well below its trading high of 1,552.87, reached in March 2000.

The Nasdaq composite index, which has lagged the other major indexes in recovery from Wall Street’s prolonged slump early in the decade, gained 9.23 points, or 0.36 percent.

Bonds slipped, with the yield on the benchmark 10-year Treasury note rising to 4.82 percent from 4.79 percent late Monday. The dollar was mixed against other major currencies, while gold prices fell.

Stock markets in other countries have also been gaining, particularly in China. The Shanghai Composite Index gained 0.9 percent to 4,110.38, breaking above 4,100 for the first time. The Shenzhen Composite Index climbed 1.4 percent to 1,198.41, also a record high.

The spike in the sometimes volatile Chinese stock markets coincided with high-level talks between the United States and China aimed at lessening economic tensions. Leaders began meeting on Monday for two days of talks to ease conflicts in bilateral trade and an undervalued yuan.

Though Chinese stocks are now at highs, it was a plunge in the Shanghai market in February that provoked worries worldwide about the global economy and valuation of share prices. Investors remain nervous that global markets might have gotten ahead of themselves, and are poised for a pullback similar to what happened earlier this year.

Oil prices backed off their recent run, with a barrel of light sweet crude falling $1.30 to $64.97 on the New York Mercantile Exchange. Prices have been driven higher in part by ongoing concerns that U.S. refiners are not producing enough gasoline to meet peak summer demand.

In corporate news, MGM Mirage surged $17.03, or 27 percent, to $79.98. Kerkorian said he expects to pursue “financial restructuring transactions” for the casino. His investment vehicle, Tracinda Corp., owns a 56 percent stake in MGM Mirage.

Chevron Corp., the world’s second-largest oil company, said it will sell its 12 percent stake in power producer Dynegy Inc. The move is part of Chevron’s push to shed unnecessary operations, and sent its shares down 65 cents to $82.18. Dynegy fell 34 cents, or 3.3 percent, to $9.83.

Fremont General Corp. agreed to sell its commercial real estate lending business, and some of its loan portfolio, for $1.9 billion to iStar Financial Inc. The Santa Monica-based company has been dismantling its business because of troubles in the subprime mortgage sector. Fremont rose $2.89, or 41 percent, to $10.

Acquisitions have been a primary catalysts behind the stock market’s advance, and this week alone totaled some $93.5 billion in announced global offers, according to financial data provider Dealogic. So far this year, about $2.3 trillion worth of takeovers have been announced — putting the tally on pace to beat last year’s record $4 trillion.

“The merger-and-acquisition activity is phenomenal. Every day you get something. Until that disappears, it’s going to be hard for the market to go lower,” said Matt Kelmon, portfolio manager of the Kelmoore Strategy Funds.

Wall Street also didn’t get the kind of positive earnings reports it has used in the past to buy into stocks. On Tuesday, office supplies retailer Staples Inc. reported light first quarter sales, and nudged its profit guidance lower. Shares fell 62 cents, or 2.4 percent, to $25.05.

Overseas, Japan’s Nikkei stock average closed up 0.70 percent. At the close, Britain’s FTSE 100 was down 0.46 percent, Germany’s DAX index rose 0.53 percent and France’s CAC-40 was essentially unchanged.