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 takeovers 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 U.S. 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 housing stocks, with the Dow Jones U.S. Home Construction Index down 2.4 percent.
The Dow Jones industrial average slipped 14.39 points, or 0.11 percent, to end at 13,337.66. The Standard & Poor's 500 Index dropped 4.85 points, or 0.32 percent, to finish at 1,492.89. The Nasdaq Composite Index declined 2.92 points, or 0.11 percent, to close at 2,574.16.
ORACLE EXTENDS DECLINE AFTER THE CLOSE
After the bell, Oracle Corp., the world's third-largest software company, reported a higher quarterly profit. But its stock slipped 0.4 percent to $19.08 in after-hours trading. It ended Nasdaq trading at $19.16, down 1.6 percent.
In contrast, shares of Nike Inc. rose 2.4 percent to $55.10 in extended-hours trading after its results beat estimates. Nike inched up 0.02 percent to $53.82 on the NYSE.
LENNAR SLIDES, BUT VENTANA SOARS
During the session, the benchmark 10-year U.S. 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 U.S. 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 collateralized debt obligations.
After Tuesday's close, Bear Stearns said it will not bail out a second hedge fund that has about $1.2 billion in debt. During regular trading, the investment bank's stock rose 0.2 percent to close at $139.35 on the NYSE
Despite the broader positive 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.
U.S. 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 takeover offer from Swiss drug maker Roche, while Dutch chemical firm Basell said it had agreed to buy U.S. chemicals firm Huntsman Corp.
Huntsman shares shot up 28.1 percent to $24.21 and topped the percentage gainers on the NYSE. Ventana shares surged 47.7 percent to $76.43 and ranked No. 1 among the Nasdaq's biggest percentage gainers.
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 2.13 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.