US stocks closed down for a third session on Tuesday as higher bond yields raised concerns about borrowing costs and more fallout from the subprime mortgage market kept investors on edge.
But a drop in oil prices eased worries about inflation and take-overs in health care and chemicals increased optimism about share valuations, limiting the market's decline. During the session, stocks remained skittish and swung back and forth from positive to negative.
"Everyone's trying to pick the bottom with housing and they are going to continue to speculate on that," said John O'Brien, senior vice president at MKM Partners LLC in Cleveland. Bill Gross, manager of the world's largest bond fund, said the subprime mortgage crisis gripping US financial markets was not an isolated event and will eventually take a toll on the economy.
Rising bond yields and fears the subprime mortgage meltdown could spread hurt some financial stocks, including shares of Citigroup Inc, down 1 percent at $51.15. The Dow Jones US Home Construction Index fell 2.4 percent.
The Dow Jones industrial average was down 14.39 points, or 0.11 percent, to end at 13,337.66. The Standard & Poor's 500 Index was down 4.85 points, or 0.32 percent, to finish at 1,492.89. The Nasdaq Composite Index was down 2.92 points, or 0.11 percent, at 2,574.16.
The benchmark 10-year US Treasury note was down 2/32, while the yield was up at 5.10 percent. Government data showed new home sales fell more than expected last month, while consumer confidence slid in June to a 10-month low.
In addition, Lennar Corp, the No 2 US home builder, posted a disappointing quarterly loss and gave a gloomy outlook, sending its shares down 3.1 percent to $37.55 on the New York Stock Exchange.
On Friday, Bear Stearns Cos. Inc said it would bail out one of two hedge funds it manages that has invested in debt backed by subprime mortgages - raising concerns that other investment banks, hedge funds and investors may have to take losses on their portfolios of collateralised debt obligations.
"Professionals don't like unknowns. Bear Stearns has to come out and quantify the losses," said Elliot Spar, market strategist with Ryan Beck & Co, in New York.
Despite the broader postive effect of lower oil prices, the decline weighed on shares of energy companies, making them among the top drags on the S&P 500. Exxon Mobil Corp fell 0.7 percent to $81.82. US crude oil futures slid 2 percent. The front-month contract fell $1.41 to settle at $67.77 a barrel.
Ventana Medical Systems Inc, a tissue-based diagnostics specialist, received a hostile take-over offer from Swiss drug maker Roche, while Dutch chemical firm Basell said it had agreed to buy US chemicals firm Huntsman Corp Huntsman shares shot up 28.1 percent to $24.21 on the NYSE, while Ventana shares surged 47.7 percent to $76.43 on the Nasdaq.
Trading was active on the New York Stock Exchange, with about 1.74 billion shares changing hands, below last year's estimated daily average of 1.84 billion, while on Nasdaq, about 2.10 billion shares traded, above last year's daily average of 2.02 billion. Declining stocks outnumbered advancing ones by a ratio of about 2 to 1 on the NYSE and by about 8 to 7 on Nasdaq.
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