Stocks Snap Losing Streak


NEW YORK (TheStreet) -- The major U.S. equity indices finished with slight gains Tuesday as the financial and technology sectors caught a bounce.

Wall Street was able to look past Spain's deepening funding worries for a day, and bonds -- still hovering at historically low yields -- saw some mild selling. It was a light day for economic data with the latest read on business activity in the U.S. services sector coming in a hair above expectations.

The Dow Jones Industrial Average added 26 points, or 0.22%, to close at 12,128. The positive finish snapped a four-day losing streak for the blue-chip index, which is now down 0.7% year-to-date.

The S&P 500 advanced 7 points, or 0.57%, to settle at 1285.50, while the Nasdaq rose 18 points, or 0.66%, to finish at 2778.

Within in the Dow, 17 of the index's 30 components closed higher, led by Bank of America ( BAC), Hewlett-Packard ( HPQ), Intel ( INTC) and JPMorgan Chase ( JPM).

The blue-chip laggards were Coca-Cola ( KO), United Technologies ( UTX), and Wal-Mart Stores ( WMT).

Aside from the financials and technology, the consumer cyclical and basic materials sectors showed some strength. In the broad market, winners were outpacing losers by close to a 3-to-1 ratio on the New York Stock Exchange, and a 2-to-1 ratio on the Nasdaq.

After weak services sector reads out of the eurozone, investors were cautious ahead of the U.S. data. The Institute for Supply Management's services index rose to 53.7 in May from 53.5 in April. The consensus estimate was for a read of 53.1. A reading above 50 indicates expansion.

"The service sector came out a little better than market expectations and all the components except for that of employment improved somewhat," said Peter Cardillo, chief market economist at Rockwell Global Capital. "That was a little bit of a relief. The impetus for the market moving higher is that we held 1275 at the close yesterday on the S&P. From technical viewpoint, the market is trying to stabilize and probably indicating that the worst of the decline is behind us."

But while the slight increase was better than a miss, Paul Ashworth, chief U.S. economist at Capital Economics, wasn't all that impressed.

"The trivial increase in the ISM non-manufacturing index to 53.7 in May, from 53.5, will provide a little comfort to those concerned that the global economic slowdown is now undermining the US economic recovery," he wrote. "Both the manufacturing and non-manufacturing ISM indices appear to be holding well above the 50 mark. Indeed, at that level the non-manufacturing index would be consistent with GDP growth of around 2%. Nevertheless, it's also worth remembering that index was up at 57.3 in February and pointing to GDP growth of more than 3%."

Evan Nowack, managing director at HighTower's Bethesda, Md. office, says the market is now awaiting Federal Reserve chairman Ben Bernanke's congressional testimony on Thursday. He predicts that Bernanke will reiterate that Europe has been a big stress on the market, but that he won't give a clear signal on whether a third round of quantitative easing or another kind of Operation Twist will take place.

" President Barack Obama doesn't want a recession going into the election, so he'll do his best to get something going," he added.

Ahead of the European Central Bank meeting on Wednesday, Nowack predicts that the central bank will probably carry out a coordinated effort to lower interest rates. "They have to find addition ways to shore up some growth," he explained.

"The ECB will probably lower interest rates and that will probably help the European markets to stabilize," said Cardillo. "Rates are collapsing around the world" and that will eventually be positive for equities.

The DAX in Germany settled down 0.15%. The London Stock Exchange was closed to mark the Queen's Diamond Jubilee.

Activity in the eurozone's manufacturing and services sectors continued to fall in May, according to the Markit Eurozone purchasing managers composite output index.

The final reading came in at 46 in May, down from 46.7 in April, the steepest rate of decline in the single currency area since Jun. 2009.

The final Markit eurozone services business activity index fell to a seven-month low of 46.7 in May from 46.9 in April.

As the G-7 got ready to hold its meeting, Spain's Treasury Minister Cristobal Montoro warned that soaring borrowing rates for the government -- thanks to Spain's banking crisis -- have effectively been shutting off the eurozone's fourth largest economy from the credit markets.

He pleaded that European funds be used to bolster the country's banks but there was no action from the G-7 meeting on Tuesday. The U.S. Treasury said earlier in the day that G-7 discussions showed progress towards Europe's fiscal union, and that it plans to monitor developments closely ahead of the G20 meeting in Los Cabos, Mexico later in June.

Brian Amidei, managing director and partner at HighTower Palm Desert says that Europe is the "tail that's wagging the dog."

"Their bond yields are just outrageous when you look at them in line with our bond yields or Germany's or the U.K.'s," he said. "When you look at those things, Spain is desperately in need of funding for its banks. I think all eyes are really on Europe. It's like when they sneeze, we catch a cold."

Amidei doubts the market could go down another 12% to the lows hit last summer; rather he thinks another 4% to 5% decline followed by a rally is more likely.

The Hang Seng Index in Hong Kong finished up 0.4% and the Nikkei in Japan rose 1%.

The July crude oil contract was rose 23 cents to settle at $84.21 a barrel. August gold futures tacked on $4.80 to settle at $1,618.70 an ounce.

The benchmark 10-year Treasury fell 13/32, lifting the yield to 1.573%. The dollar was up 0.29%, according to the dollar index.

In corporate news, shares of Dollar General ( DG) lost nearly 4% after the off-price retailer said that its CEO Richard Dreiling and other executives were planning to sell 25 million shares in the company.

Oracle's ( ORCL) stock rose 2% as the software giant announced that it has agreed to buy Collective Intellect, a provider of cloud-based social intelligence solutions.

Coffee company Starbucks ( SBUX) reached an agreement to acquire La Boulange Bakery, a private San Francisco-based bakery chain, for $100 million in cash. The stock lost close to 3%.

Google ( GOOG) has agreed to buy Silicon Valley startup Meebo. Meebo boasts 100 million monthly active users. Google shares fell 1.4%.

"We are always looking for better ways to help users share content and connect with others across the Web, just as they do in real life,'' Google said in a statement. "With the Meebo team's expertise in social publisher tools, we believe they will be a great fit with the Google Plus team.'' Terms of the deal weren't disclosed, but reports last month put the price tag at about $100 million.


-- Written by Andrea Tse in New York.

>To contact the writer of this article, click here: Andrea Tse.

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