Dow Hits Record High on Merger News

News Corp.'s buyout offer for Dow Jones & Co. helped spark buying. Economic reports were mixed

Stocks gained ground Tuesday on news that News Corp. (NWS) made a $60 per share unsolicited offer for Dow Jones & Co. (DJ). Economic news was mixed, with a key manufacturing index coming in stronger than expected and the pending home sales index dropping more than forecast, while oil prices retreated.

The Dow Jones industrial average rose 73.23 points, or 0.56%, to a new closing high of 13,136.14. The broader S&P 500 index was up 3.93 points, or 0.27%, to 1,486.3. The tech-heavy Nasdaq Composite index added 6.44 points, or 0.26%, to 2,531.53.

Dow Jones shares surged 51% to a new 52-week high of $55 after being halted briefly when CNBC reported that News Corp was planning a $5 billion bid for the newspaper company (see, 5/1/07, "Murdoch Makes a Play for Dow Jones"). Dow Jones said in a statement around 4 p.m. ET that a slight majority of the voting power are opposed to News Corp.'s offer.

Action Economics notes that if a M&A spree in the news sector emerges, it could shore up investor sentiment after yesterday's dive in share prices amid a mild correction from the extended earnings-fueled rally in April.

Other market watchers are worried. "Though this market has shown a remarkable resiliency to short term bouts of selling pressure, the signs of deteriorating momentum in terms of both breadth and points suggest that investors should not count on yesterday's sell-off being a one-day wonder," according to Richard Dickson, senior market strategist for Lowry's Reports in North Palm Beach (Fla.).

In the energy markets, June West Texas Intermediate crude oil fell $1.29 to $64.42 per barrel. Traders cited profit taking ahead of Wednesday's EIA inventory data, while slightly easier gasoline prices weighed as well, says Action Economics. Inventory stats are expected to show about a 1.0 million barrel rise in crude stocks, though gasoline supplies are seen down 1.0 million barrels, says Action Economics.

Federal Reserve President Ben Bernanke's 11 a.m. EDT speech at an economic development conference in Montana embraced the challenge of free trade, but he did not address policy or the economy.

In economic news, the ISM manufacturing index rose to 54.7 in April, after dipping to 50.9 in March. This was stronger than expected, and well above whisper numbers in the high 40s, says Action Economics. The employment, new orders, and prices paid indexes accelerated.

U.S. pending home sales index fell 4.9% to 104.3 in March, weaker than expected, after rebounding 0.7% to 109.3 in February after a 4.2% slide in January. Weakness was seen in three of the four zones, with only the West posting a gain (1.6%). On a year-over-year basis, pending home sales are down 11.7%. "Looks like more pain is due in the housing sector," says Action Economics.

April auto sales figures from major automakers mostly matched estimates.

And the International Council of Shopping Centers-UBS Weekly U.S. Retail Chain Store Sales Index rose 0.5% in the week ended Apr. 28 thanks to warmer weather, but year-over-year momentum flagged as sales were up 1.9% vs. 2.1% the week before. In the absence of any strong sales driver, chain store sales growth has and will continue to flip-flop around, according to the ICSC.

Looking ahead to Wednesday, the March factory orders is expected to rebound 2.1%, while shipments rise 1.1%. Inventories are expected to rise 0.4%. The durable goods report has set a solid tone for the month, says Action Economics.

Among stocks moving Tuesday, apparel retailer Liz Claiborne (LIZ) skidded 17% after it posted sharply lower first-quarter profit on a 1.6% sales drop. The company says it has seen acceleration of many of the negative trends that have impacted its wholesale business over the past few years.

Circuit City (CC) was lower after the retailer said it expects to report a pretax loss of as much as $90 million this quarter. The company has been hit hard by sharply competitive pricing for TVs and other electronics gear.

Dow component Procter & Gamble (PG) lost 2.2% despite posting higher fiscal third-quarter earnings.

Archer-Daniles-Midalnd (ADM) dipped after the agricultural processor posting lower-than-expected third quarter earnings on 25% higher revenue.

Anadarko Petroleum (APC) was lower after the oil and gas outfit reported a first quarter loss per share of $1.19 due to derivatives losses and a tax in Algeria.

Homebuilder Centex (CTX) was down after the company reported a 49% drop in fiscal fourth quarter net income on expenses to walk away from options it had to buy land.

Chemed (CHE) was higher after the hospice provider and operator of the Roto-Rooter plumbing service raised its 2007 EPS forecast.

Most European markets were closed for May Day observances. In London, the FTSE 100 index dipped 29.6 points, or 0.46%, to 6,419.6.

Many Asian markets were closed as well. In Japan, the Nikkei 225 index fell 125.43 points, or 0.72%, to 17,274.98.

Treasury Market

The strong ISM trumped the weak pending home sales index, as the 10-year yield rose to 4.64%, says Action Economics.

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