Stocks narrowly mixed ahead of earnings; banks up on possible $5 billion investment in WaMu

Wall Street started the week with a narrowly mixed performance Monday, with many investors moving to the sidelines as they wait for quarterly profit reports.

Stocks had popped higher in earlier trading, extending last week's big advance on talk of a $5 billion private equity investment in Washington Mutual Inc. The nation's largest thrift is reportedly in discussions with buyout shop TPG Inc. and other investors about selling a stake in itself in return for cash.

But with earnings on tap and the Federal Reserve issuing minutes from its March meeting on Tuesday, investors, while clearly feeling more confident overall, decided to play it a little safer late in the day — especially with Alcoa Inc. announcing its first-quarter results after the close.

Alcoa was the biggest loser among the 30 Dow Jones industrials, falling $1.56, or 4 percent, to $37.44 ahead of its earnings release. The aluminum company said it had a 54 percent drop in first-quarter net income, a sharper decline than the market expected. Its shares were little changed in after-hours trading.

The broader market started pulling back when the Standard & Poor's 500 index began approaching the levels where it stood before Wall Street's massive selloff in early March, noted Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.

"When the market closes, first-quarter earnings kick up — it looks like people are taking money off the table ahead of those," Detrick said. "We had a good rally. We're thinking the next major driver will be those earnings reports."

The Dow rose 3.01, or 0.02 percent, to 12,612.43, after rising more than 120 points earlier in the day and finishing last week up 393.02, or 3.22 percent.

Broader stock indicators were mixed Monday. The S&P 500 index closed up 2.14, or 0.16 percent, at 1,372.54, after rising as high as 1,386.74. The Nasdaq composite index fell 6.15, or 0.26 percent, to 2,364.83.

Government bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, jumped to 3.54 percent from 3.47 percent late Wednesday.

Though the stock market has not recovered all the ground it lost in March, when the credit crisis reached a critical point and led to the buyout of Bear Stearns Cos., investors launched a strong comeback last week. Wall Street is growing more optimistic that stocks and the companies that issue them may be starting to rebound from a long slump due to tight credit and a sluggish economy.

"Overall, I'm getting the sense here that the Street is starting to focus on fundamentals and the timing of a potential recovery in the economy, and trying to move past the credit crisis," said Craig Peckham, market strategist at Jefferies & Co.

That's not to say the market volatility seen over the past several months has subsided for good. As earnings pour in over the next couple weeks, it's possible investors could grow anxious again — especially if banks reveal bigger losses than expected, Peckham said, and in more types of debt than anticipated.

Alcoa's results might stir some of that anxiety. The company said it earned 37 cents per share in the first quarter, compared to analysts' expectations of 48 cents.

But there were many signs during the day that Wall Street was feeling more optimistic.

After news that Washington Mutual might sell a stake for cash — a move that other banks such as Citigroup Inc., Merrill Lynch & Co. and Morgan Stanley have also made — WaMu shares shot up $2.98, or 29 percent, to $13.15. Other banks rose as well; Merrill rose $1.30, or 2.8 percent, to $47.55, and Bear Stearns rose 20 cents to $10.67 and Goldman Sachs rose $3.33 to $178.73.

In other dealmaking news, Swiss pharmaceutical maker Novartis AG said it will spend about $38 billion in a two-step bid for a majority stake in U.S. eye-care company Alcon Inc. Alcon rose $2.19 to $150.63, and Novartis fell $2.12, or 4 percent, to $50.

Discover Financial Services LLC said it was buying the Diners Club International card network from Citigroup Inc. for $165 million. Discover rose 95 cents, or 5.5 percent, to $18.09, while Citi rose 52 cents, or 2.2 percent, to $24.60.

And Microsoft Corp. gave Yahoo Inc. a three-week deadline to agree to a takeover, or, Microsoft said, it would launch a proxy fight for control of the company. Yahoo fell 66 cents, or 2.3 percent, to $27.70, while Microsoft closed flat at $29.16. Yahoo said the deal isn't in the best interests of its shareholders, and called Microsoft's proxy threat counterproductive.

Last week, stocks advanced as investors found relief in reports that Lehman Brothers Holdings Inc. and Switzerland's UBS AG are selling stock to raise cash and Merrill Lynch & Co. believes it has sufficient cash to continue operating.

And even as Martin Feldstein, chief executive of the National Bureau of Economic Research, said Monday on CNBC he personally believes the U.S. economy has been slipping into recession since January, stocks largely held on to its big gains from last week. The NBER has not officially decided whether the economy is in recession, and normally is not able to until after the fact. Moreover, investors are likely factoring the likelihood of a recession into their moves.

Light, sweet crude rose $2.70 to $108.93 a barrel on the New York Mercantile Exchange. Gold prices also increased, and the dollar gained against most other major currencies.

Advancing issues outnumbered decliners by about 9 to 7 on the New York Stock Exchange. Consolidated volume came to 3.66 billion shares, up from 3.59 billion on Friday.

The Russell 2000 index of smaller companies fell 1.05, or 0.15 percent, to 712.68.

Overseas, Japan's Nikkei stock average rose 1.18 percent. Britain's FTSE 100 added 1.14 percent, Germany's DAX index rose 0.85 percent, and France's CAC-40 rose 0.89 percent.

___

On the Net:

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com