Stocks close lower after big deal fizzles

NEW YORK » Wall Street pulled back yesterday following Microsoft Corp.'s decision to withdraw its bid for Yahoo Inc. and as oil prices rose to a new record over $120 a barrel.

Microsoft had offered to buy Yahoo Inc. for $47.5 billion, but scrapped the bid late Saturday after the software maker and the Internet provider could not agree on a sale price.

A jump in oil prices raised concerns that inflation could force consumers, who account for more than two-thirds of the economy, to cut their spending on discretionary items.

Crude oil futures for June delivery surged to a new trading high of $120.21 a barrel on the New York Mercantile Exchange before pulling back to settle up $3.65 at a record $119.97. The jump followed worries over supply disruptions in areas such as Nigeria, Iran and Iraq.

"Energy is a very important piece," said Russell Croft, portfolio manager at Croft Leominster Investment Management in Baltimore. "It's the price at the pump, it's what people read about."

There is a growing sense on Wall Street that the Fed is in the process of putting its rate cuts on hold, and accelerating inflation would make such a pause more likely.

The Dow Jones industrial average fell 88.66, or 0.68 percent, to 12,969.54

Broader stock indicators also declined. The Standard & Poor's 500 index fell 6.41, or 0.45 percent, to 1,407.49, while the Nasdaq composite index fell 12.87, or 0.52 percent, to 2,464.12.

The Russell 2000 index of smaller companies fell 1.39, or 0.19 percent, to 724.35.

Declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange, where volume came to 3.30 billion shares, compared with 3.86 billion traded Friday.

Bond prices rose as stocks declined. The yield on the benchmark 10-year Treasury note fell to 3.84 percent from 3.86 percent Friday. In late trading, however, bond prices declined, and the 10-year yield rose to 3.87 percent.

Gold prices also climbed and the dollar traded mixed against other major currencies.

Despite their concerns about inflation, investors briefly took 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.

Meanwhile, Yahoo fell $4.30, or 15 percent, to $24.37 after Microsoft's decision to walk away. Shares of Microsoft slipped 16 cents to $29.08.

Helping to offset some of investors' disappointment over the abandoned Yahoo deal was a report that Deutsche Tele-kom AG is considering a bid to buy Sprint Nextel Corp., according to people familiar with the discussions.

Sprint rose 83 cents, or 10.5 percent, to $8.72 on the report and as the newspaper reported that Sprint is considering spinning off its Nextel arm.

Countrywide Financial fell 62 cents, or 10.4 percent, to $5.36 after a Wall Street analyst said Bank of America Corp. should abandon its proposed takeover of the mortgage lender. Another analyst suggested the deal would likely be renegotiated for a lower price.

Bank of America fell 82 cents, or 2.1 percent, to $38.97.