Stocks Fall on Google Report, Rate Worries

Reports of deal talks between Merrill Lynch and money manager BlackRock were also in the spotlight

Stocks finished lower Monday in unusually light trading, following a steep decline in Japan and a bearish article about Wall Street darling Google (GOOG). Bullish comments from Cleveland's Fed chief heightened interest rate jitters ahead of Fed Chairman Ben Bernanke's first testimony to Congress on Wednesday, says Standard & Poor's MarketScope.

The Dow Jones industrial average fell 26.73 points, or 0.24%, to 10,892.32. The broader Standard & Poor's 500 index declined 4.13 points, or 0.33%, to 1,262.86. Sagging tech stocks pushed the Nasdaq composite index lower 22.07 points, or 0.98%, to 2,239.81.

Google ended down nearly 5% Monday, in the wake of a report suggesting the Internet search giant's share price could be cut in half over the next year. The company faces growing competition from Microsoft (MSFT) and Yahoo (YHOO), according to the report, as well as increased pricing pressure in online ad sales and mounting concern about click fraud. (See BW Online, 1/19/06, "Is Google Out of Steam?")

M&A activity continued to buzz. Brokerage giant Merrill Lynch (MER) reportedly is in talks to acquire a stake in money manager BlackRock (BLK), in a deal that would create a $1 trillion fund-management behemoth. Merrill ended higher 1%, while BlackRock shot up almost 9%.

Also in deal news, Home Depot (HD) reportedly was in negotiations to buy a 49% stake in China do-it-yourself chain Orient Home. Home Depot finished up 1%.

The Justice Department reportedly may seek to block the proposed $1.79 billion acquisition of home-appliance maker Maytag (MYG) by rival Whirlpool (WHR).

On the economic calendar, Fed Chairman Ben Bernanke makes his inaugural monetary policy report to Congress on Wednesday. Also this week, expected strong data on retail sales, industrial production, and housing starts should set the stage for a further interest rate hike to 5% in May, says Action Economics. On Tuesday, January retail sales are seen increasing 0.8%, while Wall Street expects business inventories to increase 0.2%.

Also on the economic front, the White House released the President's 2006 economic report Monday. It forecasts continued solid growth over the next several years.

In corporate news, Starbucks (SBUX) fell almost 3% Monday, after UBS downgraded the coffee retailer from buy to neutral.

Networking equipment maker Cisco (CSCO) entered a multimillion dollar worldwide distribution agreement with software supplier Opsware (OPSW). Cisco closed down 1%, but Opsware surged 10%.

Genentech (DNA) suspended enrollment into a Phase III study of its Avastin, Xelox and Folfox treatments for colon cancer to allow regulators to conduct a safety review.

BlackBerry maker Research in Motion (RIMM) may face a new challenger in Microsoft. The software giant announced partnerships with major cellular networks for a new generation of phones with mobile email capabilities. Hewlett-Packard (HPQ) was also reportedly readying a BlackBerry rival.

Earnings releases later in the week include Hewlett-Packard on Wednesday. Dell (DELL), JC Penney (JCP) and Target (TGT) report Thursday.

In the energy markets Monday, March West Texas Intermediate crude oil futures settled down 60 cents at $61.24 per barrel.

European markets finished higher. In London, the Financial Times-Stock Exchange 100 index rose 28.6 points, or 0.5%, to 5,792.7. Germany's DAX index climbed 54.86 points, or 0.96%, to 5,756.33. In Paris, the CAC 40 index added 46.54 points, or 0.95%, to 4,957.36.

Asian markets ended sharply lower. Japan's Nikkei 225 index slid 380.17 points, or 2.34%, to 15,877.66. In Hong Kong, the Hang Seng index dropped 113.86 points, or 0.74%, to 15,312.09. Korea's Kospi index fell 14.44 points, or 1.08%, to 1,320.79.

Treasury Market

Prices for 10-year Treasury notes were slightly higher at 99-11/32 with a yield of 4.58%, while 30-year bonds edged lower to 99-03/32 for a yield of 4.56%. The yield curve was inverted.

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