Stocks Lose Ground

Major indexes slumped Monday as Microsoft backed away from its bid for Yahoo and oil jumped to $120 per barrel

by Ben Steverman

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Stocks fell Monday as traders reacted to another surge in oil prices and Microsoft's (MSFT) decision to drop its bid for Yahoo (YHOO).

Also, Wall Street received economic data that were better-than-expected but still weak. The U.S. ISM non-manufacturing index rose to 52.0 in April from 49.6 in March. "The economy outside of manufacturing is expanding at a crawl," said Ryan Sweet of Moody's Economy.com. The data are "consistent with a mild recession that threatens to extend into the latter half of this year."

Oil hit a new record, passing $120 per barrel briefly on Monday. On the NYMEX, crude oil for June delivery ended the day up $3.65 to $119.97 per barrel.

The Microsoft-Yahoo deal's collapse reminds Wall Street of the weak mergers-and-acquisitions environment. Action Economics says Microsoft's decision "clouded M&A hopes in the tech sector." Yahoo shares were down 15% on Monday, but shares of Microsoft and competitor Google (GOOG) got a boost from the news.

There were signs of other M&A activity on Monday, however.

Deutsche Telekom (DT) is weighing a bid for Sprint Nextel (S), the Wall Street Journal says. Deutsche Telekom already owns T-Mobile, so the combination would make it the largest wireless company in the U.S. The Wall Street Journal also says Sprint Nextel is considering spinning off its troubled Nextel unit.

U.S. Airways Group is negotiating a possible merger with United Airlines' owner UAL Corp. (UAUA) after a deal with Continental (CAL) fell through, the Journal reports.

On Monday, the Dow Jones industrial average fell 88.66 points, or 0.68%, to 12,969.54. The broader S&P 500 index lost 6.41 points, or 0.45%, to 1,407.49. The tech-heavy Nasdaq composite index fell 12.87 points, or 0.52%, to 2,464.12.

On the New York Stock Exchange, 18 stocks were in negative territory for every 13 moving higher. On the Nasdaq, the ratio was negative 16 to 12.

Companies continued to release first-quarter profit reports Monday, even if the first-quarter earnings season is winding down. Four-fifths of the S&P 500 have already posted results, and Thomson Reuters expects earnings to fall 15% from a year ago.

Among stocks in the news, Boeing (BA) reportedly is dealing with even more delays developing its new 787 Dreamliner aircraft.

Countrywide Financial Corporation (CFC) was downgraded to underperform by analysts at Friedman Billings after Friday's decision by Standard & Poor's Ratings Service to rate Countrywide's debt at "junk" status.

Marvel Entertainment (MVL) posted earnings of 58 cents per share, vs. 54 cents a year ago. Lower costs and a drop in shares outstanding offset a 26% drop in sales. The firm raised its 2008 guidance.

Hewitt Associates (HEW) reported earnings of 43 cents per share, vs. 12 cents a year ago, as revenue rose 8%.

CMS Energy Corp. (CMS) posted earnings of 44 cents per share, vs. 42 cents a year ago. The firm saw a slight drop in revenue, but lower costs. CMS reaffirmed previous earnings guidance for 2008.

Continental Resources (CLR) reported earnings of 52 cents, vs. 34 cents a year ago, as revenue rose 88%. Due to more drilling and oil recovery activity, the firm expects production to increase 42% by the end of the year.

Major European indexes were mixed on Monday. Paris' CAC 40 index was down 0.13% to 5,063.36, and Germany's DAX index edged up 0.13% to 7,052.08. UK markets were closed for a holiday.

In Asia, Hong Kong's Hang Seng index fell 0.22% to 26,183.95. Japanese markets were closed for a holiday.

Treasury market

Treasuries gave up earlier gains after the ISM nonmanufacturing index report eased recession fears a bit. The ten-year note edged down 01/32 to 97-07/32 for a yield of 3.84%, while the 30-year bond eased 04/32 to 96-21/32 for a yield of 4.58%.

Steverman is a reporter for BusinessWeek's Investing channel.