Stocks closed mixed as investors were encouraged by a strong batch of merger news but gains were held in check by rising interest rates.
"The key for the market right now is the ability to digest the fact that the 10-year has moved out of that range that we've enjoyed between 4.5% and 5% and probably to a range more characterized by 5% to 5.5%," said Russ Koesterich, head of investment strategy at Barclays Global Investors.
"The summer could have volatility and maybe a modest pullback but I think if inflation continues to decelerate you could have a decent fourth quarter and put on additional gains," Koesterich added.
The Dow Jones Industrial Average traded slipped while the S&P 500 ended just above the unchanged mark. Buying in the information technology sector helped to support the Nasdaq Composite and kept the tech-heavy index close to seven-year highs.
"Treasury yields are rising on the day so that's why equities are taking a breather," said Mike Malone, trading analyst at Cowen & Co. "The primary driver of the economy and the stock market for some time has been liquidity, and that liquidity is being driven by the credit markets."
Shares of Google and Apple each closed at at all-time record highs.
Meanwhile, Research in Motion shares jumped about 4% to close at a new high on news the company obtained clearance to sell its BlackBerry smartphones in China.
"The thing we like best about this market is the emergence of the tech sector," said Stephen Porpora, managing floor broker for William O'Neil. "The tech stocks are moving to the top of the industry group and this is very positive."
Breadth was slightly negative with decliners just edging gainers on the NYSE. Four of ten sectors tracked by S&P were trading higher.
"The two things we want to watch in the next 48 hours are the Nasdaq continuing to show good leadership on the strong days and the (leveraged buyout) movement," said Kevin Ferry, chief market strategist at Cronus Futures Management.
Treasury prices fell, sending the yield on the benchmark 10-year note back above 5.1%.
Shares of energy stocks fell after an unexpected build in crude oil inventories last week. The Energy Department said crude oil supplies rose by 3.1 million barrels last week. Analysts expected a drawdown in crude inventories.
New York light sweet crude futures pared earlier gains to move back below $72 a barrel.
Hotel stocks were big gainers after Blackstone Group agreed to buyHilton Hotels for $20 billion.
Blackstone's lackluster stock performance isn't stopping Kohlberg Kravis Roberts from going ahead with a $1.25 billion stock offering.
In other M&A news, shares of Bausch & Lomb moved higher on reports that rival Advanced Medical Optics is close to making a $75 a share bid for the eyecare products company. The proposed deal is higher than a competing bid from Warburg Pincus.
Apollo Management made a $6 billion bid for chemical companyHuntsman .
Coca-Cola is also making headlines as it tries to diversify away from the carbonated drinks business by evaluating whether to make a bid for Snapple, the iced tea and fruit juice company owned by Cadbury Schweppes.
General Motors was the biggest percentage loser on the Dow after Bear Stearns downgraded the stock to "peer perform" from "outperform." The broker noted that the stock is up 31% and said it would be prudent to take profits.
In economic news, the monthly non-manufacturing ISM index came in at 60.7 for June, better than expected. The economists' consensus forecast was 57.5.
The ADP employment report showed non-farm private jobs increased by a healthy 150,000 in June, compared to 98,000 in May.
The Labor Department says jobless claims rose by 2,000 last week to 318,000. The number of people claiming unemployment benefits for the first time was expected to have fallen to 313,000, compared to 326,000 in the previous week.
European Stocks Finish Lower
European stock markets closed lower Thursday, following interest-rate decisions for the euro zoneand the U.K.
The European Central Bank, as expected left interest rates unchanged at 4%. The ECB sets rates for the 13 countries that use the euro as their currency.
And the Bank of England boosted interest rates to 5.75% from 5.5% as it continues to battle inflation.
The London FTSE-100, while the Paris CAC-40 and Frankfurt DAX all finished lower.
In corporate news, the proposed $122.6 billion merger between French utilities Gaz de France and Suez could see progress as the long-awaited tie-up is set to be discussed by the French government Thursday, according to French newspaperLes Echos and the Financial Times.
The race to become the sole network partner for Apple's new iPhone in the U.K.heated up, with Mobile phone operator O2, a unit of Spain's Telefonica, likely to clinch in the deal ahead of Vodafone, according to the Financial Times.
And Renault posted a 3.8% decline in first-half world-group sales, but the French car maker said it expected a slight increase in full-year sales, thanks to new models. Shares in Renault fell.