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Stocks end lower amid inflation worry

/ Source: The Associated Press

Wall Street ended Monday lower after three days of solid gains, as investors watched Treasury bond yields fluctuate amid lingering questions about inflation.

The market appeared to be taking a break after last week’s sharp rally, when tame inflation data pushed the Dow Jones industrial average to its biggest three-day point gain since November 2004. With little significant economic data due at the start of the week, investors were left searching for a catalyst to extend the rally.

Treasury yields have moved higher over the past few weeks on concerns that inflation is stubbornly high and the economy is rebounding, trends that make it unlikely the Federal Reserve will lower interest rates. The yield on the benchmark 10-year Treasury note traded as high as 5.18 percent Monday before closing at 5.15 percent, just below Friday’s 5.16 percent.

“There’s a very strong correlation between yields and the stock market these days, and that will likely be the case until investors get more comfortable,” said Mike Malone, trading analyst at Cowen & Co.

Investors were somewhat encouraged by a fresh round of acquisition news in a year that so far is on a record-setting pace. Alcoa Inc., the world’s second-biggest aluminum producer, jumped on talk it might again be the target of a takeover bid by Australian mining company BHP Billiton Ltd. Meanwhile, General Electric Co. and Pearson PLC is said to be mulling a joint $5 billion bid for Dow Jones & Co.

The Dow fell 26.50 points, or 0.19 percent, while the broader Standard & Poor’s 500-stock index fell 1.86 points, or 0.12 percent, and the Nasdaq composite index fell 0.11 point, or less than 0.01 percent.

Oil prices continued its march higher, with a barrel of light sweet crude settling up $1.09 at $69.09. Energy prices have rallied in recent weeks on speculation refiners might not have enough supply to meet summer demand. The dollar was mixed against other major currencies, while gold prices rose.

A downbeat report on the housing market from the National Association of Home Builders added to the sluggish tone on Wall Street Monday. The group’s home builder sentiment index dropped to 28 from 30 in May, and analysts had expected it to remain unchanged. The report precedes the release of housing data Tuesday from the Commerce Department.

Aside from recent housing market snapshots, most economic data have been coming in strong, and last week’s inflation gauges showed milder-than-anticipated upticks in costs once food and energy prices were stripped out.

“To me, it’s amazing there’s still people looking for what’s wrong with a good economy,” said Philip S. Dow, managing director of equity strategy at RBC Dain Rauscher in Minneapolis, noting that Treasury yields surged largely because of better-than-expected economic data. “It’s kind of an abrupt change, but all in all, in reality, interest rates are relatively low by historic standards.”

In corporate news, Alcoa rose 28 cents to $41.88 after The Times of London said BHP Billiton is considering another bid for the aluminum producer. BHP Billiton considered a bid in February but dropped the idea, while Alcoa is still trying to buy Canadian rival Alcan Inc. for $28.4 billion.

Alcan gained 70 cents to $83.55.

Dow Jones rose 2 cents to $59.03 after a report in The Wall Street Journal that GE and Financial Times publisher Pearson PLC are in talks about a potential rival bid. Dow Jones controlling Bancroft family is currently considering an offer made by Rupert Murdoch’s News Corp.

Pearson fell 8 cents to $17.13, while GE shed 5 cents to $38.07. News Corp. fell 34 cents to $23.62.

Boeing Co. fell 75 cents to $97.40 as the aerospace powerhouse showcased its products at the annual Paris Air Show. The company has already secured a few smaller deals for its jets, while rival Airbus won orders from Middle Eastern airlines.

After the closing bell, Yahoo Inc. said co-founder Jerry Yang will replace Terry Semel as chief executive in the latest bid by the Internet portal to regain investor confidence. Semel will take the position of non-executive chairman and serve as an adviser to the company’s management team. Yahoo rose 81 cents, or 3 percent, to close at $28.12, then rose another $1.40, or 5 percent, to $29.52 in after-hours trading.

Overseas, Japan’s Nikkei stock average closed up 0.99 percent, while stocks in Hong Kong gained 2.69 percent and the sometimes-volatile Shanghai Composite index rose 2.9 percent. Britain’s FTSE 100 slipped 0.43 percent, Germany’s DAX index rose 0.07 percent and France’s CAC-40 fell 0.30 percent.