Stocks trade lower after Microsoft pulls Yahoo bid

Microsoft had offered $43.7 billion to buy Yahoo Inc., but scrapped the bid late Saturday after the software maker and the Internet provider could not agree on a sale price.

The failed deal came as a disappointment to Wall Street, as merger-and-acquisition activity tends to boost shareholder value, and also signals to the broader market that corporate America is optimistic about the future.

But investors did appear to take some encouragement from a key reading on the U.S. service sector. The Institute for Supply Management said its April index of nonmanufacturing activity rose to 52 from 49.6 in March. A reading above 50 signals economic expansion; analysts had expected the figure would come in at 49.3, according to economists surveyed by Thomson Financial/IFR.

In midmorning trading, the Dow Jones industrial average fell 64.97, or 0.50 percent, to 12,993.23.

Broader stock indicators were mixed. The Standard & Poor's 500 index fell 3.73, or 0.26 percent, to 1,410.17, and the Nasdaq composite index fell 4.52, or 0.18 percent, to 2,472.47.

Helping to offset some of investors' disappointment over the abandoned Yahoo deal was a report from The Wall Street Journal, which said Deutsche Telekom AG is considering a bid to buy Sprint Nextel Corp., according to people familiar with the discussions.

Bond prices slipped. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.87 percent from 3.86 percent late Friday.

Overall, first-quarter earnings reports and economic data have been coming in weak, but not as poor as many on Wall Street had braced for. Optimism for an economic rebound later in the year has lifted the Dow back above the 13,000 mark.

Investors have lingering concerns, however not only is the housing market still extremely weak, but commodities prices remain near record levels, threatening consumers' discretionary spending and their ability to pay off debt.