Stocks ended a volatile session in negative territory as investors were rattled by concerns regarding leveraged mortgage securities held by two Bear Stearns hedge funds.
"We will see a splash near term as some of these funds need to unwind positions in paper that really isn't traded too much," said Jack Ablin, chief investment officer at Harris Private Bank. "There is going to be a couple of weeks of sloppy trading in that space."
The Dow Jones Industrial Average closed down 8 points after being up as much as 129 points earlier in the session. The S&P 500 fell below the 1500 mark with a modest loss of 0.3% while the Nasdaq Composite declined 0.4%.
Investors have been nervous regarding subprime mortgage problems at two Bear Stearns hedge funds would spread. A spokesman for Bear Stearns was unavailable for comment.
Just three of the 10 economic sectors tracked by S&P ended higher with gains seen for the rate-sensitive utilities sector, along with telecoms and health care stocks. Materials stocks, energy and the financials led downside sector movers.
The yield on the 10-year Treasury note fell, as Treasury prices rose.
"We still have the subprime issues within the hedge fund portfolios," said Richard Suttmeier, chief market strategist at RightSide.com. "There's a lot of things that could shake up the market as liquidity dries up."
Also adding to Monday's subprime concerns was a report which said Goldman Sachs subprime mortgage bonds issued last year are being downgraded by credit rating companies at the fastest rate of any issuer, according to Reuters.
"The fundamentals are still very good," said Michael Darda, chief economist at MKM Partners. "Despite all of these fears, corporate credit spreads actually are close to their narrrowest level for the entire year. So that tells me that there's really no evidence of a contagion here, whatsover."
New York light sweet crude futures pared earlier losses on fears that Exxon Mobil and ConocoPhillipswould leave Venezuela after the companies refused to agree to nationalization terms.
"It's more bad news," said John Kilduff, senior vice president at Man Financial. "It doesn't look good for Exxon Mobil. I think they are going to be out of there. Some of the other companies are still haggling, but it bodes poorly for the future of Venezuela's oil production."
Oil fell sharply earlier in the session after labor unions halted a strike in Nigeria, where the work stoppage had shut down most major economic activity in Africa's biggest oil producer.
The National Association of Realtors said existing home sales in May fell slightly, by 0.3%, to 5.99 million units. Analysts surveyed by CNBC and Dow Jones expecting a further decline to an annual rate of 5.85 million units. Inventories, however, rose by 5.0% to an 8.9-month supply, the highest since June 1992.
"I think the numbers were essentially flat and that's good news," said Sean Snaith, director of the Institute for Economic Competitiveness at the University of Central Florida. "I think we're seeing a settling of the housing market and this inventory will eventually clear."
Dow component General Motors traded higher after Goldman Sachs upgraded the automaker to buy from neutral. Goldman said there was little downside for the company's stock, noting that shares could rise sharply depending on how discussions with labor unions end.
An upgrade also helped to boost shares of Bristol-Myers Squibb. Bear Stearns upgraded the drugmaker to outperform or buy from peer perform or neutral, citing robust growth and the resolution of legal issues surrounding blood-thinner Plavix.
Shares of the Blackstone Group were lower following a stellar initial public offering on Friday. Blackstone is the biggest U.S. initial public offering since 2002.
Meanwhile the potential acquisition of Dow Jones by Rupert Murdoch-run News Corp. edged closer, as newspaper reports on Sunday claimed the two are close to a pact that would protect the journalistic independence of The Wall Street Journal, if the deal went ahead.
Drugstore chain operator Walgreen posted a higher quarterly profit. The company said it earned 56 cents a share in its fiscal third quarter. Analysts, on average, were expecting Walgreen to earn 53 cents a share, according to Reuters Estimates. The company also said it will consider making more acquisitions.
European Stocks Close Mixed
European stock markets pared losses to close mixed as investors continued to worry about the outlook for interest rates despite more merger and acquisition activity.
The London FTSE-100 finished moderately higher, while the Paris CAC-40 and the Frankfurt DAX fell moderately.
The Bank for International Settlements said Sunday that central banks around the world should raise interest rates further to curb inflation pressures. It added that the good economic environment meant that rates should start moving higher to normal levels.
On the acquisition front, shares in the London Stock Exchangeslumped 7.8% at the open, but then retraced to just 0.7% lower, following confirmation the U.K. index is to buy Borsa Italiana for $2.15 billion. The initial fall in stock price brought LSE shares near the level of a denied offer from the Nasdaq exchange.
Meanwhile, European hedge fund GLG Partners edged closer to a U.S. stock listing as it agreed to be taken over by Freedom Acquisition Holdings in a deal that values GLG at about $3.4 billion.
And shares in France Telecom fell on news the French government is selling up to 7% of the telecoms company, the stake is valued at about $5.1 billion.
On the earnings front, Remy Cointreau reported a 10% rise in full-year operating profit, compared to the previous year, but earnings including charges linked to quitting a distribution venture meant the French wine and spirits group posted a net loss.
And Austrian oil and gas company OMVraised its stake in Hungarian counterpartMOL Nyrt to 18.6% from 10%, in an attempt to compete with larger companies in the oil and gas sector.
Asian Stocks Lower
Asian stocks traded lower as many of the major benchmarks failed to shake-off Friday's dismal session in the U.S.
The Nikkei 225 fell into negative territoy, but electronic plays rallied on reports JVC is likely to merge with audio equipment maker Kenwood. Both stocks rose even though the two parties denied talk that any decisions have been made.
Nintendo shares defied the inital market downtrend on news that it outplayed rival Sony in terms of market value, becoming one of the top ten issues for the first time ever. Nintendo rose as much as 2%.
South Korea's KOSPI did its best to stay afloat, inching up 10 points to 1,781.90. Analysts say the rapid rise caused uneasiness in the market.
In Australia, the S&P/ASX200 fell nearly 1% to 6,337.9 in line with the early regional market decline.
Elsewhere in Asia, Hong Kong's Hang SengIndex was lower, as was the Straits Times Index.
The Shanghai Composite Index fell dematically by 3.7%. Meantime, the Taiwan Weighted Index jumped 1.1% as a weekend announcement by the front-runner of the island's next presidential election, Ma Ying-jeou, sparked hopes of improving economic outlook.