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Stocks Run Out of Steam

The Dow briefly tops 13,500, but retreats and closes lower.

Updated from 4:14 p.m. EDT

Despite another round of corporate buyouts and strong earnings, stocks hovered around the flat line for much of the session Thursday and ultimately closed slightly lower.

The

Dow Jones Industrial Average

briefly crossed 13,500 for the first time ever, but it retreated and finished down 10.81 points, or 0.08%, to 13,476.72. The

S&P 500

slipped 1.39 points, or 0.09%, to 1512.75, and the

Nasdaq

gave back 8.04 points, or 0.32%, to 2539.38.

New York stocks had made a late push into positive territory before they pulled back. Paul Mendelsohn, chief investment strategist with Windham Financial, said he wasn't surprised by the indices' attempt to continue their recent ascent.

"This market is in an uptrend, and without anything to break it," he said. "The momentum is clearly to the upside. We don't need a catalyst to propel us higher, but we certainly need a catalyst to stop this move. People believe the worst is behind is us. It's hard to stand in front of this movement."

Even so, with the exception of Wednesday's surge, stocks have had a rather rocky week thus far. Robert Pavlik, chief investment officer with Oaktree Asset Management, said some traders are growing more cautious about committing new money, even as others fear missing the next takeout in the ongoing M&A boom.

"May is typically the beginning of a slow period for the market and this may repeat itself," he said. "Such a large run-up in just two-and-a-half months without a pullback has made some people question the sustainability of these gains."

About 2.80 billion shares changed hands on the

New York Stock Exchange

, with decliners beating advancers by a 5-to-3 margin. Volume on the Nasdaq reached 1.94 billion shares, and losers outpaced winners 3 to 2.

Prior to Wall Street's downtick, stocks appeared as though they would overcome a spike in crude oil futures. The June front-month contract surged $2.31 to close at $64.86 a barrel, the best close this month.

Meanwhile, buyouts, one of the engines that have driven a multiweek rally, remained in the spotlight.

The latest firms getting bids were

Alliance Data Systems

(ADS) - Get Alliance Data Systems Corporation Report

for $7.8 billion,

24/7 Real Media

(TFSM)

for $649 million and

Acxiom

(ACXM)

for $3 billion.

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Alliance surged 24.6% to close at $78.46, 24/7 Real Media gained 3.5% at $11.65, and Acxiom jumped 18.1% to $27.95.

Initially, stocks failed to gain ground after the previous session's rise, when the U.S. market overcame an inconsistent morning and rallied in the afternoon. The Dow gained 103.69 points, or 0.77%, to 13,487.53, its 23rd record close of the year. The S&P 500 rose 12.95 points to 1514.14, and the Nasdaq added 22.13 points at 2547.42.

After the close of trading,

Hewlett-Packard

(HPQ) - Get HP Inc. (HPQ) Report

kept the mood upbeat, topping analysts' second-quarter estimates and posting revenue that rose 13.5% from a year earlier. However, the stock retreated by 34 cents, or 0.08%, to $44.87.

Before the new session began,

J.C. Penney

(JCP) - Get J. C. Penney Company, Inc. Report

posted first-quarter earnings of $238 million, or $1.04 a share, compared with a profit of $210 million, or 89 cents a share, in the year-ago period. Results beat the Thomson First Call consensus by a penny a share.

The retailer also raised its full-year guidance, and shares ended higher by $4.02, or 5.3%, to $79.74.

Several firms made changes on stock ratings. On the upside, AG Edwards raised its rating for

Target

(TGT) - Get Target Corporation Report

to buy from hold. The firm also assigned a stock price target of $71 a share. Target rose 38 cents, or 0.7%, to $57.69.

Among downgrades, Stifel Nicolaus cut its rating for Dow component

Caterpillar

(CAT) - Get Caterpillar Inc. Report

to hold from buy. Caterpillar shed $1.11, or 1.5%, to $74.84.

Away from stocks,

Federal Reserve

Chairman Ben Bernanke spoke in Chicago on the topic of subprime mortgage markets and regulations.

Bernanke said that the Fed believes "the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system."

The economic-data docket was full again. The Labor Department said initial jobless claims fell by 5,000 last week to 293,000. The less volatile four-week moving average dropped by 12,000 to 305,500.

Elsewhere, the Conference Board said that the leading economic indicators unexpectedly fell 0.5% during April, compared with a revised 0.6% rise in March.

At midday, the Philadelphia Fed said its manufacturing index for May climbed to a reading of 4.2 from 0.2 last month. Analysts were looking for 4.0.

Government bond prices fell in the wake of the data. The 10-year note was down 12/32, yielding 4.76%, and the 30-year Treasury was weaker by 16/32, yielding 4.91%.

Overnight in Asia, stocks were mostly stronger, but Tokyo's Nikkei slipped 0.2% to 17,499. Hong Kong's Hang Seng rose 0.3% to 20,995. Most markets in Europe improved, including a gain of 0.3% to 6579 for London's FTSE and an advance of 0.2% to 7499 for Frankfurt's DAX.