Rally Hits a Speed Bump

Mergers had the market higher early in the session, but Wall Street closes with losses.
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Updated from 4:23 p.m. EST

A wave of merger bids wasn't enough to sustain the market's upward momentum Monday, and stocks closed to the downside as traders opted to book some of their recent profits.

The

Dow Jones Industrial Average

gave up 4.25 points, or 0.03%, to 12,441.27, but had been as high as 12,490.70 earlier in the session.

The

S&P 500

was down 4.61 points, or 0.32%, to 1422.48, and the

Nasdaq Composite

was off by 21.63 points, or 0.88%, to 2435.57, pressured by declines of 3.6% in

Adobe Systems

(ADBE) - Get Report

and

Google

(GOOG) - Get Report

.

"The cracks are beginning to form in the equity markets," said Paul Nolte, director of investments with Hinsdale Associates. "Seasonally, December is a strong month, and this one has been no different. But we may be seeing the final run before a meaningful correction begins with the new year."

Even though the indices pulled back, buyouts were the story of the day.

One of the biggest involves casino operator

Harrah's

(HET)

, which appears ready to accept an offer worth nearly $17 billion. At the same time,

Caremark

(CMX)

, which has a deal to merge with

CVS

(CVS) - Get Report

, is facing a $26 billion competing proposal from

Express Scripts

(ESRX)

.

Harrah's gained 3.4% to $82.18, Caremark jumped 10.5% to $55.58, and Express Scripts finished higher by 1.9% to $69.97. Meanwhile, CVS shed 2.7% to close at $73.33.

"Today's news is again full of takeovers and private-equity buyouts, over $100 billion," said Ken Tower, chief market strategist with CyberTrader. "These are sure signs of easy money

and investor enthusiasm"

At

Delta

(DALRQ)

, reports say the company will file documents with the bankruptcy court valuing it far above the $8 billion unfriendly takeover offer from

US Airways

(LCC)

. Shares of Delta lost 7% at $1.47, while US Airways ended down by 1.2% to $55.80.

Meanwhile,

Statoil

(STO)

and

Norsk Hydro

(NHY)

were gearing up to combine the Norwegian companies' oil and gas operations. Statoil was lower by 3.2% to close at $26.74, but Norsk Hydro surged 18.9% to $29.55.

Volume was strong to start the week, with more than 2.58 billion shares changing hands on the

New York Stock Exchange

. Decliners outpaced advancers by a 2-to-1 margin. Volume on the Nasdaq was roughly 1.93 billion shares, with losers beating winners 2 to 1.

"Volume should lighten up from the torrid pace it was setting late last week," said Marc Pado, U.S. market strategist with Cantor Fitzgerald. "There are several items to watch this week. There are some significant economic data out this week ...

that will be watched closely to see if the economy is living up to this 'Goldilocks' expectation we now have."

On Friday, a government report showing tame price pressure on the consumer level gave Wall Street a boost. The Dow rose 28.76 points, or 0.23%, to 12,445.52, and the S&P 500 gained 1.60 points, or 0.11%, to 1427.09. The Nasdaq tacked on 3.35 points, or 0.14%, to 2457.20.

Similar data are on tap Tuesday, when a report detailing inflation at the wholesale level, the producer price index, will be released.

Earlier, the Commerce Department reported that the third-quarter current account deficit came in at $225.6 billion, up from $217.1 billion in the second quarter.

"The economy is trending better than what it was expected to two weeks ago, and inflation is trending lower, despite what several

Federal Reserve

officials exclaim," said Pado.

Energy futures finished the session with losses, as crude oil slipped $1.22 to close at $62.21 a barrel in Nymex floor trading. Precious metals prices were generally lower, after a $1.20 downtick for gold to $617.90 an ounce.

By sector, stocks related to financials were the only winners of the session. The Philadelphia/KBW Bank Sector Index rose 0.3%, and the New York Stock Exchange Financial Index tacked on 0.1%. Oil stocks were among the hardest hit, with the Philadelphia Oil Service Sector Index losing 3.9% and the Amex Oil Index down 2.8%.

Treasuries turned higher. The 10-year note was adding 2/32 in price to yield 4.59%, and the 30-year bond was down 4/32 and yielding 4.72%.

Among analyst moves, Banc of America Securities lowered its stock price target for

Ford

(F) - Get Report

to $7 from $8. Meanwhile, the firm raised its price target for retailer

Gap

(GPS) - Get Report

to $25 from $23.

Ford slid 0.7% to $7.03, and Gap was lower by 1% at $20.19.

Oracle

(ORCL) - Get Report

shares advanced 23 cents, or 1.3%, to $17.91 before the software company's fiscal second-quarter earnings report. After the bell, Oracle said its profit jumped 22% to $967 million, or 18 cents a share, on sales of $4.2 billion. Excluding items, Oracle earned 22 cents a share, in line with analysts' forecast.

Overseas, European markets were mixed. London's FTSE 100 was off 0.2% to 6248, and Frankfurt's Xetra DAX added 0.1% to 6597. Asia's shares rose overnight. The Nikkei gained 0.3% to 16,962 and the Hang Seng added 0.4% to 19,193.