Stocks ended mixed on Monday as investors cast a wary eye on rising interest rates ahead of the Fed's two day meeting this week.
While analysts widely expect the central bank to keep short-term rates unchanged, the yield on the 10-year U.S. Treasury rose to the highest level since August. The yield on the 30-year crossed above 5%.
"I think what they're (the Fed) going to do is keep the inflation bias intact," Drew Matus, a senior economist with Bear Stearns, said on CNBC's "Closing Bell" on Monday. "At the same time they don't want anyone getting it in their heads that the Fed's getting ready to pull the trigger on a series of rate hikes."
The Dow Jones Industrial Average closed with a tiny gain, the Nasdaq rose and the S&P 500 ended slightly lower. Interest rate concerns have been rattling stocks since late last week as the bond market's sell off has damped expectations the Fed could move to cut rates in the first half of the year.
The Fed begins a two day meeting Tuesday and is not expected to move on rates. Financial stocks were the day's biggest losers, falling 0.5%.
Breadth was positive, however, as advancers outpaced decliners on the New York Stock Exchange. Buyers stepped in and bought a handful of key tech names, including Dow components Intel , IBM and Hewlett-Packard.
In separate statements late last Saturday, Intel and IBM announced a new technology to create smaller and faster chips. Hewlett-Packard rose after Prudential Equity Group raised estimates and the price target on the stock to $36 from $33.
Altria and Caterpillar were also helping to lift the Dow.
Energy stocks fell on declining oil.
"I think the S&P index was dragged down by financial stocks as traders looked at what was going on in the bond market," Arthur Hogan, managing director at Jefferies, told CNBC.com. "The fear du jour triggering movement this afternoon is the prospect of higher borrowing costs."
New York light crude futures fell sharply to hover around $54 a barrel. A drop in natural gas futures and conflicting weather and oil production concerns have kept oil traders between the $54 and $55 level.
"The major divide falls between frigid temeperatures and spreading geopolitical concerns against OPEC compliance doubts," said John Kilduff, Senior VP, Energy Risk Management for Fimat, in a note to clients.
Dow component Verizon said fourth-quarter earnings fell but sales rose on the strength of its wireless and Internet businesses. Before one-time items, profit was 62 cents a share, a penny above expectations.
Drug maker Schering-Plough said fourth-quarter profit surged 75% on strong sales of its Remicade and Nasonex products. Excluding items, the company reported profit of 17 cents a share, in line with consensus estimates of analysts surveyed by Thomson Financial.
Miner Phelps Dodge beat analysts estimates, reporting record quarterly income of $6.50 a share for the fourth-quarter of 2006 compared to the $4.28 analysts were expecting.
There is plenty of merger and acquisition news today.
Tesoro Corporation says it will by a Los Angeles refinery and 250 retail sites from Royal Dutch Shell in a deal worth about $1.6 billion, as first reported by CNBC's Maria Bartiromo.
Merrill Lynch said it will acquire San-Francisco based First Republic Bank in a $55 per share cash and stock deal valued at $1.8 billion. Shares of First Republic soared in early trading.
US Airways could raise its bid for Delta Air Linesby $1 billion in a last-ditch attempt to woo bankrupt Delta's creditors, The Wall Street Journal reported.
Symantec , the maker of Norton antivirus software, said it will buy Altiris for $830 million.
Canada's Abitibi-Consolidated and Bowater Incorporated of South Carolina said they will merge in an all-stock deal, which will create the third largest publicly traded paper and forest products company in North America. The combined company's annual revenue is expected to total approximately $7.9 billion.