Yahoo battle heats up; Dow off 108

Stocks moved lower today despite continued jawing and posturing around Microsoft's (MSFT, news, msgs) $44.6 billion offer for Internet giant Yahoo (YHOO, news, msgs).

But problems facing the financial markets and simple profit-taking were the market drivers. The selling followed a big rally last week that was set off by the Federal Reserve's decision to cut its key federal funds rate to 3%.

The Dow Jones industrials finished the day down about 108 points, 0.9%, to 12,635. The Nasdaq Composite Index slumped 31 points, or 1.3%, to 2,383, and the Standard & Poor's 500 Index fell about 15 points, or 1%, to 1,381.

The pullback came after the Dow jumped 4.4% and the S&P 500 added 4.9% last week, their biggest weekly gains since March 2003. The Nasdaq added 3.8%, its biggest weekly gain since August 2004.

But January was still a loser for investors, with the Dow down nearly 5%.

Financials, techs lead sell-off

Today's market weakness came from financial stocks, home-building and technology stocks. American Express (AXP, news, msgs) slumped 4% to $47.61 after UBS said U.S. unemployment will rise, reducing profits at the credit card company.

• Google jumps into the Microsoft-Yahoo soap opera

Merrill Lynch downgraded Wells Fargo (WFC, news, msgs) and Wachovia (WB, news, msgs), the fourth- and fifth-largest U.S. banks, saying loan losses may increase. Wells Fargo fell 6.7% to $31.39. Wachovia fell 8.3% to $35.53. Washington Mutual (WM, news, msgs) fell 12.2% to $19.16.

KB Home (KBH, news, msgs) was down 8.1% to $26.41, and the Philadelphia Housing Sector Index ($HGX.X) was off 4.5% to 150.

Cisco Systems (CSCO, news, msgs), which reports second-quarter earnings after Wednesday's close, was down 4.5% to $23.82. Apple (AAPL, news, msgs) slipped 1.6% to $131.65. The stock is down 34% from its all-time closing high of $199.83 on Dec. 28.

Light, sweet crude oil closed up $1.06 to $90.02 a barrel in New York today. Crude had fallen 3% to $88.96 on Friday on worries that a weak economy might dampen gasoline demand in the United States.

In other economic news, data on factory orders showed growth in business spending. The Commerce Department reported that orders to U.S. factories rose 2.3% in December, the biggest gain since July, from a revised 1.7% increase in November.

The White House unveiled a $3.1 trillion budget that includes several big increases in military spending and proposals that would make President Bush's tax cuts from 2001 and 2003 permanent.

• Read the government's budget proposal

The budget is for the fiscal 2009 year, which begins on Oct. 1.

Only seven of the 30 Dow stocks were ahead on the day, led by Merck (MRK, news, msgs), up 3.1% to $47.41. The laggard was General Motors (GM, news, msgs), down 4.9% to $27.57.

In addition, 351 S&P 500 stocks finished lower, along with 21 Nasdaq-100 ($NDX.X) stocks.

Energy prices -- New York close

	Mon.	Fri.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$90.02	$88.96	$1.06	-1.89%	-6.21%
Heating oil (per gallon)	$2.4833	$2.4489	$0.0344	-2.02%	-6.27%
Natural gas (per million BTU)	$7.8690	$7.7400	$0.1290	-2.54%	5.16%
Unleaded gasoline (per gallon)	$2.3117	$2.2834	$0.0283	0.11%	-7.19%

Google joins the Yahoo battle

Yahoo's 3.4% gain to $29.33 today turned out to be the best performance among Nasdaq-100 stocks and seventh best among S&P 500 stocks.

The stock moved higher after Microsoft CEO Steve Ballmer told an analyst update session that he was confident a deal could be struck and completed by year-end.

Microsoft was up for most of the day but fell 0.9% at the close to $30.19. (Microsoft is the publisher of MSN Money.)

Yahoo shares had jumped 48% on Friday to $28.38 after the Microsoft offer was announced.

Meanwhile, Google (GOOG, news, msgs), the rival of both Microsoft and Yahoo, was busily trying to find a way to derail the $31-a-share cash-and-stock deal. It would like to find another bid for Yahoo and, in addition, persuade regulators to take a hard look at the antitrust implications of a potential merger. The U.S. Justice Department has said it is interested in the deal. Regulators in Europe are expected to examine the offer closely.

While Google isn't expected to bid for Yahoo, it could get in the way of Microsoft by taking over the sales and servicing of advertising for Yahoo. The idea is not nutty, The New York Times said today. Google agreed to pay a reported $3.5 billion to sell advertising for IAC/InterActive's (IACI, news, msgs) Ask.com business.

Still, it looked today that Wall Street didn't expect Google to succeed. The stock was down 4% to $495.43, its first close under $500 since Aug. 20. Google is down more than 28% so far this year and down 33% from their all-time high in November.

Google CEO Eric Schmidt reportedly called Yahoo CEO Jerry Yang shortly after Microsoft made its $44.6 billion bid to acquire the Web company on Friday.

Schmidt told Yang that Google would help Yahoo in any effort to prevent a deal with Microsoft, The Wall Street Journal reported Sunday.

• Get free, real-time stock quotes on MSN Money

At the same time, in a blog post on Google's Web site, Chief Legal Officer David Drummond called the potential deal "troubling." Drummond questioned whether "a combination of the two (would) take advantage of a PC software monopoly to unfairly limit the ability of consumers to freely access competitors' email, IM, and web-based services."

Microsoft's general counsel, Brad Smith, countered that a combined Microsoft-Yahoo would "create a more competitive marketplace by establishing a compelling No. 2 competitor for Internet search and online advertising."

Yang tried to reassure employees in an e-mail on Friday. "The board is going to review it thoughtfully and carefully, and do what's right for our great company," Yang's e-mail stated. "Microsoft's proposal is one of many options that we're evaluating in order to maximize value for our shareholders and employees over the long-term."

In other news, Yahoo this morning announced that it is exiting the online music business. Yahoo said that Rhapsody America will be the exclusive on-demand music service for Yahoo. Rhapsody is a joint venture between RealNetworks (RNWK, news, msgs) and Viacom's (VIA, news, msgs) MTV.

RealNetworks was up 4.4% to $6.19 on the news.

What, Google worry?

"Google is much more worried about this deal than journalists had thought," Jeffrey Sonnenfeld, senior associate dean at Yale School of Management, told CNBC this morning.

Sonnenfeld said he found Google's argument "unconvincing" because it already has its own antitrust issues.

Many analysts viewed Microsoft's bid for Yahoo as a way for the two to better compete against Google. In December, Google had 56% of the U.S. search market, according to Nielsen Online, up from 53% in June; Yahoo's market share fell to 18% from 20% over the same time frame and Microsoft's rose slightly to 14% from 13%.

Microsoft Chief Financial Officer Chris Liddell said this morning that the company will likely finance at least part of any Yahoo deal with bonds. That would be a first for Microsoft, which had no long-term debt on its balance sheet at the end of 2007. Liddell wouldn't say how much Microsoft might borrow.

Bonds issued by the software giant would likely get a AAA rating, James Crandall, head of syndication at Calyon New York, told Bloomberg News.

A Microsoft bond maturing in 2018 may yield about 1.60 to 1.70 percentage points more than a U.S. Treasury security of the same maturity, Crandall said. That would be a total yield of 5.2% to 5.3%, based on current Treasury prices.

Ballmer, meanwhile, said he hoped that "the Yahoo board and the Yahoo shareholders will join with us quickly in deciding to move down an integrated path."

Separately, Goldman Sachs (GS, news, msgs) removed Google from its "conviction buy list" this morning.

A short look at January's misery

January ended last Thursday, and thank heaven for that.

The Dow dropped 4.6%. The S&P 500 was off 6.2%, and the Nasdaq Composite shed nearly 10%.

It was the third month in a row that the market dropped, with the Dow losing about 9.2% of its value in the process.

Only twice before has the Dow dropped in November, December and January consecutively: in 1931-32, as the Great Depression was accelerating, and in 1941-42, when the United States was just entering World War II. The Dow fell nearly 28% in that 1931-32 period. The loss in the 1941-42 period: a more modest 7.4%.

The January 2008 losses were cut substantially in the last seven trading days of the month, thanks to two rate cuts from the Federal Reserve. The Fed's actions brought the Fed's key federal funds rate to 3%. The fed funds rate is the rate banks charge each other for overnight loans.

The Dow's loss from its Jan. 22 close, when it was down 10.4%, was trimmed by more than half; the Nasdaq's loss was trimmed by a third.

Only seven Dow stocks had gains in January. (HOME DEPOT, news, msgs) was the Dow leader with a 13.7% gain. The laggard was Intel (INTC, news, msgs), down 21%.

Intel was a big reason that the Philadelphia Semiconductor Index ($SOX.X) slumped 12% in the month.

Among other indexes that Market Dispatches tracks, the Philadelphia Oil Service Sector Index ($OSX.X) was the laggard, down 16.2%. The winners: the Amex Gold BUGS Index ($HUI.X), the Philadelphia/KBW Banking Index ($BKX.X), and the Philadelphia Housing Sector Index, up 12%, 6.5% and 6.5%, respectively.

Higher sales boost ADM

Food- and grain-processing company Archer Daniels Midland (ADM, news, msgs) reported strong results this morning, thanks to recent rising commodity prices.

ADM said it earned $473 million, or 73 cents per share, in the fourth quarter, up from $441 million, or 67 cents per share, in the same period a year ago.

• Video: An update on earnings season

Although earnings missed analysts' expectations by a penny, revenue jumped 50% to $16.5 billion -- up from $10.98 billion and topping Wall Street's estimate of $12.75 billion.

Shares fell 2.9% to $44.20.

Short hits from the markets -- 4 p.m.

	Mon.	Fri.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	2.170%	2.050%	0.120	16.04%	-30.89%
5-year Treasury note yield	2.772%	2.745%	0.027	-1.91%	-19.77%
10-year Treasury note yield	3.643%	3.600%	0.043	0.11%	-9.71%
30-year Treasury bond yield	4.374%	4.318%	0.056	0.46%	-1.91%
Currencies
U.S. Dollar Index	75.470	75.565	-0.095	0.25%	-1.60%
British pound in dollars	$1.9751	$1.9662	0.0089	-0.83%	-0.71%
Dollar in British pounds	£0.5063	£0.5086	-0.0023	0.84%	0.72%
Euro in dollars	1.4839	1.4804	0.0035	-0.21%	1.53%
Dollar in euros	€ 0.6739	€ 0.6755	-0.0016	0.21%	-1.51%
Dollar in yen	106.70	106.64	0.06	0.27%	-4.60%
U.S. dollar in Canadian dollars	$1.007	$0.994	$0.0011	0.77%	1.44%
Canadian dollar in U.S. dollars	$0.994	$1.006	-$0.0004	-0.75%	-1.41%
Commodities
Gold	$909.40	$913.50	-$4.10	-0.45%	8.52%
Copper	$3.2985	$3.2730	$0.03	0.78%	8.47%
Silver	$16.7800	$16.8700	-$0.09	-0.53%	12.47%
Crude oil (NYMEX) (per barrel)	$90.02	$88.96	$1.06	1.19%	-6.21%

By Charley Blaine and Elizabeth Strott