Stocks Sag Despite Megamergers

Traders shorten up ahead of the Fed.
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Stocks were lower early Monday as the weight of the previous session's rally kept traders from celebrating falling oil and a flurry of corporate dealmaking.

Index futures recently showed the

S&P 500

trading 2 points below fair value, while the Nasdaq 100 was set for a 1-point decline. The 10-year Treasury note was down 1/32 in price to yield 5.11%, while the dollar slid against the yen and euro.

A tame employment report sent stocks surging Friday, led by the

Dow Jones Industrial Average

, which added 1.2% to 11,578. Weaker-than-expected payroll growth emboldened interest-rate doves who believe that the

Federal Reserve's

two-year-old tightening campaign can end after a meeting Wednesday.

Interest rate futures currently price in 100% odds of a quarter-point hike in fed funds Wednesday to 5%. Less certainty surrounds the Fed's next meeting in late June. Traders will be particularly interested in Wednesday's policy statement after Chairman Ben Bernanke hinted at a rate-hike pause in testimony before Congress on April 27.

The Dow starts the week at a six-year high, having added about 860 points, or 8%, so far in 2006. At 1325, the S&P 500 has risen 78 points, or 6.3%, this year, and currently sits at its best level since 2001. The

Nasdaq Composite

has also added 6.3% on the year, rising 138 points since Dec. 31 to a Friday close of 2343.

Oil eased on reports that Iran's president plans to propose "new ways of getting out of the current delicate situation in the world" in a letter to President Bush. Tensions around Iran's nuclear ambitions have sent front-month crude up 15% this year to a Friday close of $70.19 a barrel. In electronic trading, June crude fell 68 cents to $69.51.

Two major acquisitions were announced overnight. In the larger of the two,


(WB) - Get Report

agreed to exchange $25 billion in cash and stock for

Golden West Financial


, the nation's second largest thrift.

To view Ana Dane's video take on today's premarket action, click here


Themo Electron

(TMO) - Get Report

will trade $10.6 billion of stock for

Fischer Scientific


, creating a giant in the field of laboratory equipment.

Late Friday,

Berkshire Hathaway

confirmed it will buy an 80% stake in Israeli toolmaker Iscar Metalworking for $5 billion. It's the third largest acquisition in the history of the Warren Buffett-led conglomerate.

Buffett told investors at Berkshire's annual shareholder meeting in Omaha Saturday that he's in spending mode, hoping to put more of the company's $40 billion in investable cash to work in coming years. A "fair amount" will be spent overseas, Buffett said, reflecting his long-term bearish view on the U.S. dollar.

In earnings news Monday,


(NBR) - Get Report

said its first-quarter profit roughly doubled thanks to brisk demand among energy companies for its drilling rigs. Adjusted earnings of 79 cents a share were a nickel ahead of forecasts.

Other companies expected to report earnings Monday include


(FLR) - Get Report




. On Tuesday,


(CSCO) - Get Report



(DIS) - Get Report


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