Stocks trade flat as bond yields rise

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NEW YORK -- Wall Street traded sideways Monday after three days of solid gains, as investors eyed swings in Treasury bond yields amid lingering questions about inflation.

The pause in stocks follows 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. However, with little significant economic data due at the start of the week, investors are left searching for a catalyst to extend the rally.

Treasury bond yields have been moving higher over the past few weeks on concerns that inflation remains stubbornly high, and make it unlikely the Federal Reserve would soon lower interest rates. This trend continued on Monday, with the benchmark 10-year Treasury note rising to 5.17% from 5.16% late Friday.

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 are said to be mulling a joint $5 billion bid for Dow Jones & Co.

"The one thing we've seen this morning is Treasuries have been selling off, causing yields to move higher, and that's been the primary driver of equities going off," said Mike Malone, trading analyst at Cowen & Co. "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."

In midday trading, the Dow fell 7.56, or 0.06%, to 13,631.92. The blue-chip index is about 50 points away from its record close on June 4.

Broader stock indicators also fell. The Standard & Poor's 500 index was down 0.50, or 0.03%, at 1,532.41, and the Nasdaq composite index shed 1.59, or 0.06%, to 2,625.012.

Oil prices continued to push higher, with a barrel of light sweet crude up 77 cents at $68.77. 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.

Alcoa rose 89 cents, or 2.1%, to $42.49 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 fell 50 cents to $82.35.

Dow Jones fell 41 cents to $58.60 on 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 9 cents to $17.12, while GE shed 14 cents to $37.98. News Corp. shed 24 cents to $23.72.

Merrill Lynch & Co. sized $400 million worth of assets from hedge funds managed by Bear Stearns Cos., according to The Wall Street Journal. Last week, Bear Stearns tried to sell $4 billion in bonds backed by mortgages to raise cash for creditors of the fund.

Shares of Bear Stearns fell $3.10, or 2.1%, to $146.99. dipped 68 cents to $89.55.

Boeing Co. fell 42 cents to $97.73 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.

The Russell 2000 index of smaller companies was down 1.28, or 0.15%, at 846.91.

Advancing issues led decliners by an 8 to 7 on the New York Stock Exchange, where volume came to 494.6 million shares.

Overseas, Japan's Nikkei stock average closed up 0.99%, while stocks in Hong Kong gained 2.69% and the sometimes-volatile Shanghai Composite index rose 2.9%. Britain's FTSE 100 slipped 0.47%, Germany's DAX index fell 0.08%, and France's CAC-40 fell 0.54%.
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