(Recasts with U.S. markets, adds byline; dateline previous
LONDON)
By Herbert Lash
NEW YORK, May 5 (Reuters) - U.S. stocks fell on Monday as a
surge in oil prices to a record over $120 a barrel and doubts
about Bank of America's plan to purchase the largest U.S.
mortgage lender suggested the economy still faces headwinds.
In the stock market the higher oil prices, on weakness in
the dollar and supply concerns from OPEC members Nigeria and
Iran, overshadowed a report that showed the service sector
defied expectations to post its first monthly gain this year.
A brokerage report that said Bank of America <BAC.N> is
likely to renegotiate its deal to acquire ailing lender
Countrywide Financial Corp <CFC.N> weighed heavily on financial
shares.
"It would ignite fresh fears that the credit crisis
continues to deepen. A lot of people are saying we're in the
end, but that's coming from people who would benefit the most
from it," said Kevin Kruszenski, head of listed trading at
KeyBanc Capital Markets in Cleveland.
"The stock market is going to sell first, asks questions
later," Kruszenski said.
The Dow Jones industrial average <> was down 73.44
points, or 0.56 percent, at 12,984.76. The Standard & Poor's
500 Index <.SPX> was down 5.57 points, or 0.39 percent, at
1,408.33. The Nasdaq Composite Index <> was down 8.71
points, or 0.35 percent, at 2,468.28.
On the Nasdaq, shares of Yahoo <YHOO.O> slumped 13.4
percent to $24.84 after Microsoft <MSFT.O> dropped its bid for
the Internet media company.
Shares of Google <GOOG.O> , a competitor of both Yahoo and
Microsoft, rose on expectations the company could benefit from
the failure of the Microsoft-Yahoo talks. Yahoo was likely to
push for an advertising partnership with the Web search
company, sources familiar with the matter said. Google shares
rose 2 percent to $593.20.
The dollar stalled, failing to build on last week's gains
as investors debated the outlook for the economy and interest
rates. Short-dated U.S. government debt prices held steady
amid demand for low-risk assets, but bids were curbed by data
showing a surprise April bounce in the U.S. services sector.
European shares ended lower, breaking a three-day winning
streak, as techs and telecoms weighed and offset the impact of
the surprisingly strong U.S. service sector figures. With UK
markets closed for a public holiday, trading was thin.
The pan-European FTSEurofirst 300 <> index of top
European stocks ended down 0.3 percent at 1,357.99 points.
Tech stocks weighed in Europe after Microsoft's bid for
Yahoo fell apart. Chip equipment maker ASML <ASML.AS> lost 2.3
percent, while in the telecoms sector, Alcatel-Lucent <ALUA.PA>
lost 1.9 percent; Ericsson <ERICb.ST> shed 1.1 percent and
Nokia <NOK1V.HE> lost 1.5 percent.
Stocks got a brief fillip from data that showed the U.S.
service sector grew unexpectedly in April, snapping a
three-month period of contraction, and adding to signs that the
United States might skirt a recession.
The Institute for Supply Management's non-manufacturing
index rose to 52.0 versus 49.6 in March. ISM's jobs gauge for
the sector posted its biggest improvement in seven months but
inflation pressures were at a five-month high.
"The report is consistent with the trend we have been
seeing that the U.S. economy is not as disappointing as many
initially thought," said Nick Bennenbroek, head of foreign
exchange strategy at Wells Fargo in New York.
The surprise bounce in the ISM report curbed bids for
short-dated Treasuries.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was up
/32, with the yield at 3.8552 percent. The 2-year U.S. Treasury
note <US2YT=RR> was up 1/32, with the yield at 2.4374 percent.
The 30-year U.S. Treasury bond <US30YT=RR> was down 5/32, with
the yield at 4.5855 percent.
The dollar initially pared losses after news the ISM
report, easing concerns about the health of the U.S. economy.
But that positive momentum proved fleeting.
The dollar was down against major trading-partner
currencies, with the U.S. Dollar Index <.DXY> off 0.26 percent
at 73.262. The euro <EUR=> was up 0.39 percent at $1.5488 and
against the yen, the dollar <JPY=> was down 0.21 percent at
105.13.
U.S. crude oil futures jumped as weakness in the dollar and
renewed tensions with Iran spurred buying.
Lighter-than-normal trading volumes due to holidays in
Britain were expected to lead to a more volatile trading day,
analysts said.
U.S. light sweet crude oil <CLc1> rose $3.42, or 2.94
percent, to $119.74 per barrel.
"We're seeing a weakening in the dollar and Friday's
unemployment data reinforce the point that we may not have too
much demand deterioration. That's got people putting money back
into this market," said Jim Ritterbusch, president of
Ritterbusch & Associates in Galena, Illinois.
"We could get up to $122 as an upside target this week."
U.S. gold futures jumped in thin volume following almost a
4 percent decline last week. Dollar weakness and higher oil
prices also helped lift bullion closer to the $900 level.
Spot gold prices <XAU=> rose $14.00, or 1.64 percent, to
$869.45.
In Asia, Japan was on holiday, but in Hong Kong stocks fell
from the previous session's three-and-a-half-month high,
closing down 0.22 percent.
(Editing by Leslie Adler)
