Mergers, optimism drive rise
Wall Street managed a modest gain Tuesday as investors bought cautiously amid a series of new takeover deals and upbeat consumer confidence figures.
Stocks drew support from news that a consortium of banks led by Royal Bank of Scotland said it would bid $95.5 billion for the Netherlands’ ABN Amro, besting an offer from Barclays. Other takeover news included an announcement that real estate investor Tishman Speyer Properties and Lehman Bros. Holdings were buying Archstone-Smith Trust for at least $13.5 billion.
A move by China to cool off its skyrocketing stock market limited Wall Street’s broader advance amid concern about a global equity sell-off. Beijing’s decision to triple its tax on securities trades to 0.3% from 0.1%, announced late in the U.S. trading session, put investors on edge and contributed to a choppy session despite optimism about stock valuations in the tech sector.
“The concern is that China may be acknowledging that their markets are overheated,” said Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles. “Any little ripple like this is grounds for the [U.S.] market to sell off.”
The Dow Jones industrial average rose 14.06 points, or 0.1%, to 13,521.34.
The Standard & Poor’s 500 index rose 2.38 points, or 0.2%, to 1,518.11. The S&P; 500, which last week flirted with a new closing high, stands 0.6% short of its record close set in March 2000.
The component stocks of the S&P; 500 are trading at 17.9 times earnings, about half the price-to-earnings valuation when the index climbed to its March 2000 record.
“The market still is trading at fairly attractive valuation levels,” said Michelle Clayman, who oversees the investment of $6.2 billion as chief investment officer at New Amsterdam Partners in New York. “It’s supported by deals and underlying fundamentals.”
The Nasdaq composite index gained 14.87 points, or 0.6%, to 2,572.06. The Russell 2000 index of smaller-company stocks was up 7.60 points, or 0.9%, at 837.53. Advancing issues outnumbered decliners by almost 2 to 1 on the New York Stock Exchange.
Tuesday was the first trading day of the week for U.S. exchanges after being closed for Memorial Day.
Bond yields rose after the consumer confidence data were released. The yield on the benchmark 10-year Treasury note climbed to 4.88% from 4.86% late Friday.
The dollar gained against the yen and was unchanged versus the euro, while gold prices climbed.
Oil prices tumbled as threats to Nigerian output eased. Crude futures sank $2.05 to $63.15 a barrel on the New York Mercantile Exchange. And the average U.S. retail price of gasoline fell for only the second time in the last 17 weeks.
In response, Exxon Mobil, one of the 30 Dow components, fell 89 cents to $82.62.
Most people on Wall Street hope the economy is growing fast enough to stoke companies’ U.S.-based businesses, but not so quickly that it would prevent the Federal Reserve from lowering interest rates later in the year. On the growth side, the Conference Board said Tuesday that its consumer confidence index rose more than analysts expected to 108 in May, up from a revised 106.3 in April. Also suggesting strength in the economy, the Fed’s Dallas and Chicago banks reported expansions in regional manufacturing activity.
But the housing sector looked weak after the Standard & Poor’s housing index indicated that U.S. home prices declined 1.4% in the first quarter compared with a year earlier, marking the first quarter since 1991 in which prices posted a year-to-year drop.
In other market highlights:
* Archstone-Smith stock rose $6.19, or 11%, to $61.42 on the announcement that the No. 2 U.S. real estate investment trust specializing in apartments was being acquired. Property companies accounted for seven of the 10 top gains in the S&P; 500.
* Engineering and construction company URS said it would buy competitor Washington Group International for $2.6 billion. Washington Group rose $15.07, or 22%, to $85.04, and URS rose $2.38, or 5.1%, to $49.27.
* The technology sector, which has been weaker than the rest of the stock market in recent months, got a boost Tuesday after Vodafone Group said it narrowed its full-year loss. U.S. shares of the world’s biggest mobile phone company rose $1.14, or 3.7%, to $31.70.
* Shares of Avaya jumped $2.09, or 15%, to $15.76. The Wall Street Journal reported that the telecom gear maker was in talks with private equity and strategic bidders about a sale of all or part of the company. Speculation about Avaya had been underway since it last week postponed an analyst meeting set for this week.
A gauge of real estate companies in the S&P; 500 rose 4.1%. Simon Property Group gained $3.52, or 3.4%, to $105.40. Equity Residential jumped $3.20, or 6.7%, to $50.75.
* CDW surged $7.55, or 10%, to $83.11. The Journal reported that the distributor of hardware, software and technology accessories was in discussions to be bought by private equity firm Silver Lake Partners.
* Shares of IBM rose 73 cents, or 0.7%, to $105.91 after a financial publication reported that the stock could easily top $120, citing the company’s forecast for higher profit due to software sales, stock buybacks and growth in emerging markets.
* InfoSpace jumped $2.71, or 13%, to $23.30 after a Spanish newspaper said LaNetro Zed was planning to buy the U.S. provider of content via the Internet and mobile phones.
* Overseas, key stock indexes rose 0.5% in Japan, Britain and Germany and fell 0.25% in France.
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Home prices slip
U.S. home prices dropped 1.4% in the first quarter of 2007 compared with the previous year, an index released Tuesday by Standard & Poor’s showed. It was the first such decline since 1991. Among major cities, Detroit saw the biggest drop, while Seattle had the greatest increase. Overall Southern California prices have continued to rise, according to DataQuick. Related story, C4.
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Sources: Standard & Poor’s, DataQuick Information Systems. Graphics reporting by Scott Wilson
