Nasdaq hits six-year high

Takeover news and speculation drove the Nasdaq composite index to its highest close in more than six years Tuesday, with casino and technology stocks leading the advance.

But the Dow industrials and the Standard & Poor’s 500 index slipped as Treasury bond yields rose to three-month highs, raising concern that higher borrowing costs would slow the economy and limit corporate profit growth. For a second straight day, the S&P; toyed with closing above its 7-year-old record high before finishing lower.

Despite the rising bond yields, home builders and mortgage lenders -- sectors usually allergic to higher interest rates -- rallied after Treasury Secretary Henry M. Paulson Jr. said the housing slump was largely over.

MGM Mirage led casino stocks higher after billionaire investor Kirk Kerkorian expressed interest in buying two Las Vegas properties from the company.

The Dow Jones industrials edged down 2.93 points to 13,539.95.

The S&P; 500 index slipped 0.98 points, or 0.1%, to 1,524.12. The gauge, seen by many as the best indicator of the performance of U.S. stocks, briefly traded Monday and Tuesday above its record close of 1,527.46 set in March 2000.

The Nasdaq composite index, which has lagged behind the other major indexes in recovering from Wall Street’s slump early in the decade, rose 9.23 points, or 0.4%, to 2,588.02.

The Russell 2000 index of smaller-company stocks rose 6.27 points, or 0.8%, to 839.92, surpassing the record close it set May 9. The large-cap Russell 1000 index and broader Russell 3000 indexes also set record closes for the second straight day Tuesday.

Advancing issues outpaced decliners by a 9 to 7 margin on the New York Stock Exchange.

Bonds yields climbed. The benchmark 10-year Treasury note’s yield rose to 4.83% from 4.78% late Monday, in part because of a flood of corporate bonds into the market. The dollar rose against the yen and the euro, while gold prices fell.

Oil prices backed off their recent run. Crude futures fell $1.30 to $64.97 a barrel on the New York Mercantile Exchange.

The Treasury secretary’s comments on cable channel CNBC fed speculation that demand for housing might rebound sooner than expected. The Dow Jones U.S. home construction index jumped 3.5%.

“The stars of the day are the home builders,” said Michael Metz, chief investment strategist at Oppenheimer & Co. in New York. “Investors feel that the worst is over for those stocks.”

Westwood-based KB Home rose $1.49, or 3.3%, to $46.42. Lennar, the biggest U.S. builder, climbed $1.09, or 2.4%, to $46.50. D.R. Horton jumped 93 cents, or 4.1%, to $23.75.

Mortgage lenders climbed on Paulson’s comments as well as news that Fremont General had agreed to sell its commercial real estate unit to iStar Financial for $1.9 billion and had replaced its top three executives.

Santa Monica-based Fremont soared $2.89, or 41%, to $10. Washington Mutual, the largest U.S. savings and loan, climbed $1.12, or 2.6%, to $44.08.

Accredited Home Lenders Holding rose 63 cents, or 4.9%, to $13.38 after an investment firm said it boosted its stake in the San Diego-based sub-prime mortgage company. NovaStar Financial, another sub-prime lender, surged 42 cents, or 7%, to $6.38. IStar Financial climbed $1.79, or 3.9%, to $47.60.

In the casino sector, MGM Mirage soared $17.03, or 27%, to $79.98. Kerkorian said Monday that he wanted to buy the company’s Bellagio Hotel & Casino in Las Vegas. MGM said it would “respond in due course.”

Kerkorian also said he was studying options including a “financial restructuring” for the rest of MGM Mirage.

Among other casino stocks, Las Vegas Sands rose $4.28, or 5.6%, to $80.19. Steve Wynn’s Wynn Resorts gained $6.96, or 7.4%, to $101.15. Boyd Gaming climbed $2.60 to $49.64.

In other market highlights:

* Intel rose 36 cents, or 1.6%, to $22.99. Intel and STMicroelectronics plan to combine their unprofitable flash-memory businesses, creating the No. 1 maker of chips that store software in mobile phones.

* Takeover talk drove up shares of Canada’s Research in Motion. The BlackBerry maker’s U.S.-listed stock climbed $7.06, or 4.6%, to $159.06.

* Energy stocks were the biggest drag on the S&P; 500 and the Dow industrials as oil prices fell. Exxon Mobil declined 82 cents, or 1%, to $82.77. Chevron, which said it would sell its 12% stake in power producer Dynegy, fell 65 cents to $82.18. Dynegy dropped 34 cents, or 3.3%, to $9.83.

* Retailing stocks declined after Staples reported light first-quarter sales and nudged its profit forecast lower, and American Eagle Outfitters disappointed investors with its outlook on earnings.

Staples dropped 62 cents, or 2.4%, to $25.05. American Eagle declined $1.27, or 4.3%, to $28.06.

* Monster Worldwide tumbled $2.53, or 5.1%, to $47.25 after a Goldman Sachs analyst said a stock sale by the Internet job-search site’s founder reduced the odds that the company would be sold at a premium.

* Lockheed Martin shares slumped $4.57, or 4.6%, to $94.22 after Cowen & Co. downgraded the defense giant to “neutral” from “outperform.”

* AutoZone declined $1.88 to $132.11. The No. 1 U.S. seller of automobile parts posted fiscal third-quarter revenue of $1.47 billion, below analysts’ estimates.

* Overseas, Chinese stocks advanced to record highs for a second consecutive day. Shanghai’s main index gained 0.9% while Shenzhen’s climbed 1.4%.

Key stock indexes rose 0.7% in Japan and 0.5% in Germany, and fell 0.5% in Britain.