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Stocks End Higher As Oil Drops

Oil prices fell below $130 and new home sales rose. But home prices plunged across the U.S. and consumer confidence dropped

Stocks ended higher on Tuesday thanks to a retreat in oil prices and a batch of mixed economic data. U.S. home prices fell the most in 20 years and consumer confidence dropped. However, new home sales rose, instead of falling as expected.

On Tuesday, the Dow Jones industrial average ended 68.72 points, or 0.55%, higher at 12,548.35. The broader S&P 500 index moved up 9.42 points, or 0.68%, to 1,385.35. The tech-heavy Nasdaq composite index gained 36.57 points, or 1.50%, to finish at 2,481.24.

The U.S. dollar index rose on perception that the Federal Reserve has finished cutting rates for this year. That put pressure on bonds and gold futures prices.

"The market celebrated the crack in the price of oil," says Art Hogan, chief market analyst at Jefferies & Co. in Boston. "Breaking and closing below the $130 [per barrel] mark psychologically helped."

Oil prices reversed to the downside on a stronger dollar. WTI crude oil futures for July delivery settled $3.34 lower at $128.85 a barrel. Other commodity prices fell as well, including those of copper and gold and products such as coffee, cocoa and sugar.

Transportation stocks soared as oil stocks plunged, and technology names were also stronger. On the New York Stock Exchange, 19 stocks traded higher for every 11 that fell, while on the Nasdaq, the ratio was 18-9 positive.

M&A was also a highlight on Tuesday. Belgian giant InBev (INBVF.PK) is considering an unsolicited bid for Amheuser-Busch Companies (BUD), according to company insiders. Industry analysts say an offer likely would top $45 billion, making it the largest beer acquisition ever, the Wall Street Journal reported. Deutsche Bank reportedly downgraded Anheuser-Busch to hold from buy.

The Blackstone Group (BX) and Apollo are reported to be discussing a possible deal to buy Chemtura (CEM), CNBC Business News said.

Halliburton (HAL) is in a bidding war with a private equity consortium Umbrellastream Ltd. to acquire International Group PLC, a European oilfield contractor. Halliburton topped Umbrellastream's bid last week with an all-cash offer of $3.36 billion, only to have Umbrellastream sweeten its bid to $3.43 billion on Monday.

The fact that a company other than Halliburton -- and one that's not even in the energy industry -- is willing to make a big bet that the economy is going to move forward between this year and next year is significant, says Hogan at Jefferies.

"We're probably going to hear more chatter on the M&A side," which is likely to include foreign buyers taking runs at the weak dollar, he says.

Among other stocks in the news, UBS AG (UBS) shares dropped after the Wall Street Journal reported the Swiss bank warned it may have to record losses on non-U.S. real estate as it seeks nearly $16 billion from shareholders to repair a damaged balance sheet.

Leading the week's economic news, the Standard & Poor's/Case-Shiller national home price index fell 14.1% in the first quarter from the the year-ago period, the biggest decline in the index's 20-year history. The 20-city index dropped 14.4% in the first quarter, its worst drop since its inception in 2001, with 19 of 20 metropolitan areas showing declines and record lows posted by 15 of them. The 20-city index was down 2.2% in March, with Las Vegas, Miami and Phoenix showing the biggest home price erosion.

U.S. new home sales rose 3.3% to 526,000 units in April, exceeding expectations (for a drop to 520,000), following a revised 509,000 unit clip in March (previoulsy 526,000). Supply fell to 10.6 months in April from 11.1 months in March. The median sales price came in at $246,100, a 1.5% gain over $242,500 in April 2007.

The consumer confidence index dropped to 57.2 in May, below the expected reading of 60.3, vs. 62.3 in April. It's the lowest level for the index in 16 years, according to the Conference Board.

More important clues to the strength of the economy this week will be durable goods orders for April, due out on Wednesday, the first-quarter GDP price index slated for Thursday and the personal income figures for April, to be released on Friday, says Hogan. He's expecting a positive surprise in the durable goods numbers, which most analysts have underestimated, he believes.

San Francisco Fed's Janet Yellen said that the current level of rates is appropriate given weakness across most sectors of the economy and unusually large risks, reports Action Economics. Yellen said that the real Fed funds rate near zero should help growth rebound along with fiscal stimulus and she sees a gradual step up to moderate growth later this year.

Some other stocks in the news Tuesday include Zymogenetics (ZGEN), which announced that the Food and Drug Administration approved a Prior Approval Supplement application for a 20,000 international unit (IU) vial of RECOTHROM Thrombin, topical (Recombinant) and also approved co-packaging of the 20,000-IU vial with the ZymoGenetics Spray Applicator Kit.

Major European indexes were mostly lower Tuesday. In London, the FTSE 100 index was off 0.47% to 6,058.50. In Paris, the CAC 40 index lost 0.63% to 4,906.56, while Germany's DAX index finished up 0.07% at 6,958.66.

In Asia, Japan's Nikkei 225 rose 1.48% to finish at 13,893.31, while Hong Kong's Hang Seng index climbed 0.64% to 24,282.04.

Treasury market

Treasuries were under pressure on Tuesday as equities gained strength on sliding oil prices. The 10-year note moved down in price to 99-20/32 for a yield of 3.92%, and the 30-year bond fell to 95-23/32 for a yield of 4.64%.

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