Stocks closed lower as comments from former Federal Reserve Chairman Alan Greenspan and worries about upcoming economic data deflated a rally fed by takeover news.
Stocks initially rose after the market got a fresh load of deal-related news that included a possible bidding battle over aluminum producer Alcan. But the excitement waned after a media report that Greenspan expressed concern about an eventual sharp decline in China's stock market--which has recently been hitting record highs.
Wall Street's mood also dampened when energy prices failed to ease despite a rebound in U.S. crude and gasoline inventories last week. And with key reports on durable goods and new home sales due for release Thursday and the long Memorial Day weekend looming, investors adopted a defensive stance.
"The market's been held up by all of this M&A activity, not by fundamentals," said Ed Peters, chief investment officer at PanAgora Asset Management. "Also, people are getting ready for the weekend. People don't want to have long positions."
Strong merger and acquisition activity has for weeks been the primary force lifting the Dow, which crossed over the 13,000 milestone less than a month ago, so after some worrisome comments from Greenspan, analysts were not surprised to see investors take a breather.
"He still carries a lot of clout," said Steven DeSanctis, small cap strategist with Prudential Equity Group in New York. "You get a data point like that and people start to take profits, get a little nervous."
The S&P 500 was on pace for an all-time record close before pulling back. Buying was initially across the board among the S&P 500 sectors. However, all of the gainers came off of earlier highs. Information technology and the utilities sectors led the decline, extending earlier weakness.
Treasury prices fell, sending the yield on the 30-year bond above 5%. The yield on the benchmark 10-year note rose to its highest level in three months.
Canadian aluminum giant Alcan is in talks with Australia's BHP Billiton after the company rejected Alcoa's hostile bid on Tuesday, according to a Canadian newspaper. Alcan called Alcoa's offer inadequate and vowed to talk to other parties about a deal. Alcan and BHP have declined to comment on the newspaper report.
Dow component Alcoa rose more than 3% on speculation that Alcan might actually try to acquire Alcoa.
New York light sweet crude futures rose to trade at $66 a barrel, at one point, despite a buildup in crude oil and gasoline. The EIA said crude supplies rose by 2 million barrels last week, while gasoline inventories rose by 1.5 million barrels and distillates, which include home heating oil, rose by 500,000 barrels.
European Stocks Close Higher
European stock markets shrugged off early investor apathy to continue the broad based rally across the major bourses, following a largely positive Asian session.
The London FTSE-100, Paris CAC-40 and the Frankfurt DAX all finished higher. The FTSE CNBC Global 300 was trading higher as well.
The biggest loser on the FTSE-100 was sugar and sweetener producer Tate & Lyle, which saw a 7.2% drop at the open. The London-listed company posted a 14% rise in full-year profit, but warned that profit growth this year from its sugar substitute product sucralose will be modest. The market was also disappointed by a 9% rise in sales for the sweetener.
Also in corporate news, Ahold announced it plans a reverse share split. The move is part of a proposal to return $4.03 billion to shareholders. Shares climbed.
Zurich Financial Services said it aimed to become a top-five insurer globally and upped its goal for operating return on equity (ROE) to 16% from 12%. Shares rose.
And French carmaker Peugeot Citroen looked set to continue its restructuring plan by cutting its fixed costs by 30%, according to comments from CEO Christian Streiff reported in French newspaper Les Echos. Shares of the company rose.
The Bank of England's Monetary Policy Committee voted unanimously to raise the U.K. base interest rate to 5.5% in May, the minutes of the meeting showed Wednesday, and some members also mulled a half-point hike to 5.75%. The committee also agreed that if the economy should continue to develop broadly in line with expectations then rates could move higher.
Asia Mostly Higher
Asian markets were mostly higher in the afternoon session Wednesday as strong earnings forecasts boosted bank shares in Japan and South Korea closed at its third consecutive record high.
Investors also bought Japanese banks on the sector's brighter outlook and exporters such as Toyota Motor after the dollar rose to a fresh three-month high against the yen. A weak yen is usually good news for exporters as it helps boost the value of overseas earnings.
Tokyo's Nikkei 225 Average closed higher as shares of Japan's three largest banks extended gains on profit prospects this year but Nippon Sheet Glass dropped on a lower forecast, curbing the overall gains. Acom and other consumer lenders surged after
official filings showed that a U.S. investment firm increased holdings in these firms.
South Korea's Kospi Index hit its third consecutive record as pharmaceuticals firms such as
Hanmi rallied on expectations the sector had dropped too much this year relative to their earnings potential.
Australian shares finished a touch higher, as top banks recovered from previous session's steep falls, while Qantas Airways raced to a record with investors betting on a generous capital return. But Babcock & Brown Infrastructure fell after its previously announced $2.2 billion buy of utility NorthWestern was opposed by a U.S. regulator opposed its planned purchase of a utility.
In markets still trading, Hong Kong blue chips fell while China plays gained as investors bought China Shenhua following reports that the Chinese government was pushing the coal producer to list domestically. Shares in new issue Belle International Holdings, China's top women's shoe retailer, traded as high as HK$8.45, or 36% above its IPO price of HK$6.20 per share, though some had predicted a stronger debut.
China's Shanghai Composite Index was up over 1% in heavy trading, hitting a new all-time high, as positive local media reports about the market buoyed sentiment.