Bulls Forced to Back Up

The Dow and the Nasdaq close lower for the second straight day.
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Updated from 4:12 p.m. EST

The

S&P 500's

slimmest of gains Tuesday was all that stood in the way of a second straight decline for the three broad averages, as a selloff in bonds took the steam out of an early stock market rally.

The

Dow Jones Industrial Average

slipped 2.56 points, or 0.02%, to 10,888.16. Shortly after the open, the Dow topped its four-year closing high of 10,940 before starting its pullback. The S&P tacked on 0.02 of a point at 1257.48, and the

Nasdaq

was down by 6.66 points, or 0.3%, to 2232.71.

"Profit-taking and some concerns the market might be overbought held us back today," said Robert Pavlik, chief investment officer with Oaktree Asset Management. "It doesn't look like there was much in the way of buying demand. People have been hearing a lot of talk about being in an overbought condition, and that's raised concerns near-term for the market."

On Monday, stocks had their first down session in more than a week.

"Even after yesterday's decline, we're still seeing more volatility," said Paul Nolte, director of investments with Hinsdale Associates. "We got the initial pop from the economic data, but it appears the market is struggling with 11,000. We've got some rotation coming out of leaders like semiconductors as we're approaching year-end."

The Philadelphia Semiconductor Sector Index, which is up 10% for November, has fallen 1.8% since Friday's close. Meanwhile, the Amex Oil Index, which lost 3.7% to start the week, rose slightly on Tuesday. The Nasdaq Transportation Index increased 0.5%, and the Nasdaq Computer Index fell 0.6%.

About 1.60 billion shares traded on the

New York Stock Exchange

, where five stocks rose for every three that fell. Trading volume on the Nasdaq was 1.78 billion shares, with advancers narrowly outpacing decliners 15 to 14.

The 10-year Treasury dropped 19/32 in price, lifting the yield to 4.48%, while the dollar rose against the yen and the euro.

The pullback in bonds came after the Commerce Department said new-home sales unexpectedly rose 13% to an annual rate of 1.42 million units. Sales were expected to fall slightly to 1.20 million units from 1.22 million in September.

Treasury yields had backed down Monday after a report showed a slowdown in sales of pre-owned homes last month. The report led to a downgrade of

Countrywide

(CFC)

at Morgan Stanley on Tuesday, knocking the stock down 2.9%.

Elsewhere on the economic front, the Commerce Department said October durable goods orders rose 3.4%. Economists expected an increase of 1.5% after a revised 2% decline in September. Excluding transportation, durable goods orders rose 0.3%.

"It was a good number, and it's further indication that the economy is outpacing expectations," said Peter Cardillo, chief market analyst with SW Bach & Co.

Meanwhile, the Conference Board said its consumer confidence index for November jumped to a reading of 98.9. The index was expected to increase to 90.0 from a revised 85.2 last month.

The improvement follows last week's uptick in the consumer sentiment index from the University of Michigan. "This is only a slight positive, as I don't feel the consumer has been crimped in spending patterns," said Barry Hyman, equity market strategist with Ehrenkrantz King Nussbaum.

Gold, which is up 14% in 2005, crossed above the $500 mark for the first time in 18 years on Nymex before pulling back. The metal, which often is used as a hedge against inflation, has also benefited from heightened jewelry demand and a recent upbeat prediction by the head of

Newmont Mining

(NEM) - Get Report

that gold is headed to $1,000. Gold was up 80 cents to $499.10 an ounce.

Oil, which lost $1.41 a barrel on Monday, continued to ease, finishing down 86 cents to $56.50 on the January contract, its lowest level since June. Warm weather in the Northeast, calming words from OPEC and the steady rebuilding of Gulf Coast energy infrastructure kept prices moving downward.

In corporate news,

Western Digital

(WDC) - Get Report

, the disk-drive maker sometimes used as a proxy for consumer hardware sales, bumped up second-quarter earnings guidance Monday, thanks to strong sales of notebooks and PCs. Western Digital rose 29 cents, or 2%, to $14.79.

The news was followed by an upgrade of

Seagate

(STX) - Get Report

at Goldman Sachs, which cited strong demand among business customers and for parts used in

Microsoft's

(MSFT) - Get Report

Xbox. Shares of Seagate gained 90 cents, or 5.1%, to close at $18.51.

PepsiCo

(PEP) - Get Report

reiterated that its 2005 earnings should be $2.38 or $2.39 a share. Core earnings are expected to be $2.64 or $2.65 a share, in line with analysts' expectations, according to Thomson First Call. The company said it will take a restructuring charge in order to reduce costs in the fourth quarter. PepsiCo added 15 cents, or 0.3%, to $59.77.

Express Scripts

(ESRX)

finished up 7.2% after raising its 2006 profit estimate late Monday on strength in generic-drug use and growth in its specialty pharmacy business. The stock gained $5.77 to $85.66.

Among earnings,

GameStop

(GME) - Get Report

swung to a third-quarter loss of $2.5 million, or 4 cents a share, after a profit of $12.1 million, or 21 cents a share, last year. Excluding items, the company earned about 16 cents a share, beating the Thomson First Call consensus by 2 cents. Sales were up 28% to $534.2 million from a year ago. GameStop lost 19 cents, or 0.5%, to $34.99.

TiVo

(TIVO) - Get Report

posted a third-quarter loss of $14.2 million, or 17 cents a share, narrowing from a loss of $26.4 million, or 33 cents a share, a year ago. Analysts were expecting a loss of 23 cents a share, according to Thomson First Call.

Looking ahead, TiVo expects a fourth-quarter loss in the range of $17 million to $22 million on revenue of $43.5 million to $45.5 million. Analysts are targeting a loss of $23.1 million on revenue of $47.2 million. TiVo lost 55 cents, or 9.6%, to $5.18.

Shares of

Google

(GOOG) - Get Report

retreated after Merrill Lynch reiterated its neutral rating on the stock as the firm feels risk has grown. Meanwhile, Sanford Research downgraded Google to hold from buy. The stock slid $19.94, or 4.7%, to $403.54.

Also in the day's ratings news, UBS cut

BellSouth

(BLS)

to neutral from buy, citing margin decay in the company's traditional local telephony division. BellSouth was lower by 21 cents, or 0.8%, to close at $27.63.

UBS also downgraded retailer

Pier 1

(PIR) - Get Report

to reduce from neutral as the firm sees no fundamental improvement in the struggling retailer. The stock was down $1.09, or 8.2%, to $12.27.

Overseas markets were mixed, with London's FTSE 100 up 0.3% to 5491 and Germany's Xetra DAX adding 0.4% to 5199. In Asia, Japan's Nikkei fell 0.4% overnight to 14,928, while Hong Kong's Hang Seng slipped 0.5% to 15,029.