(Updates to midday, changes byline)
By Cal Mankowski
NEW YORK, May 6 (Reuters) - U.S. stocks edged higher on
Tuesday after speculation that Microsoft and Yahoo will resume
merger talks and comments from housing finance company Fannie
Mae reassured investors about its financial condition.
Before the opening bell, Fannie Mae <FNM.N>, the largest
provider of U.S. home financing, reported a net $2.5 billion
loss and said it sees significant credit losses into 2009. The
company also cut its dividend.
Shares of Fannie Mae and its smaller rival, Freddie Mac,
opened sharply lower but changed course and posted strong
gains after Fannie's positive comments on a conference call.
Microsoft Corp <MSFT.0> and Yahoo Inc <YHOO.O> both rose
as speculation continued that pressure from Yahoo's
shareholders would bring about renewed merger talks and an
eventual deal. Microsoft shares gained 1.4 percent to $29.50
while Yahoo jumped nearly 6 percent to $25.81, making them
among the Nasdaq's top positive movers.
"It seems like the shareholders are going to try to make
something happen, but the stock is acting like that's real,"
said Bobby Harrington, head of block trading at UBS in
Stamford, Connecticut.
The Dow Jones industrial average <> rose 1.71 points,
or 0.01 percent, at 12,971.25. The Standard & Poor's 500 Index
<.SPX> gained 4.58 points, or 0.33 percent, to 1,412.07. The
Nasdaq Composite Index <> climbed 9.71 points, or 0.39
percent, to 2,473.83.
Fannie Mae shares climbed 6.2 percent to $30.04 and
Freddie Mac shares advanced 5.2 percent to $26.85. Moody's
Investors Service affirmed Fannie's "Aaa" senior debt rating.
Elsewhere in the financial sector, the credit crunch and
its related problems continued to weigh.
Money manager Legg Mason Inc <LM.N> posted a quarterly
loss, merger adviser Lazard Ltd <LAZ.N> reported a 71 percent
drop in earnings and Swiss bank UBS <UBSN.VX> said it will cut
5,500 employees because of subprime and other credit losses.
Legg Mason shares were down 6.3 percent at $58.78.
Lazard's stock fell 6.3 percent to $35.13.
Banking stocks were already rattled on Monday by doubts
about Bank of America's <BAC.N> takeover of troubled mortgage
lender Countrywide Financial Corp <CFC.N>. Late on Monday,
Bank of America said it remains committed to the takeover
deal.
At midday, Bank of America's stock was up 0.5 percent at
$39.18, reversing an earlier decline, while Countrywide's
stock was down 1.7 percent at $5.45.
The S&P financial sector index <.GSPF>, which fell in
early trading, changed course and shot up 1.8 percent.
Energy shares extended Monday's gains after Anadarko
Petroleum <APC.N> posted better-than-expected earnings late on
Monday and crude oil futures surged on Tuesday to hit a record
above $122 per barrel.
Anadarko shares jumped 9.3 percent to $74.39. Hess Corp
<HES.N> shares were another top gainer in the oil patch,
rising 6.8 percent to $115.60.
Crude's higher price pummeled airline stocks for a second
straight session. The American Stock Exchange index of
airlines' shares <.XAL> slid 3.2 percent. Its worst performer
was UAL Corp <UAUA.O>, the operator of United Airlines, which
fell 7.1 percent to $13.93.
(Additional reporting by Jennifer Coogan)
(Reporting by Cal Mankowski; Editing by Jan Paschal)
