Oil rebounds; stock rally fades

By Charley Blaine and Elizabeth Strott

What started out as a terrific stock market rally ended with just a modest gain as crude oil rebounded and Yahoo (YHOO, news, msgs) plunged 10% after saying its deal talks with Microsoft (MSFT, news, msgs) are over.

Crude oil, down as much as $5.39 a barrel to $131.55 this morning, rebounded and ended the day up 36 cents at $136.74.

Stocks, which have moved in the opposite direction to crude, gave up most of their gains.

The Dow Jones industrials, which had been up 185 points in the morning -- and briefly down nearly 7 points -- finished with a gain of just 58 points to 12,142. The blue-chip index had fallen 206 points on Wednesday.

The Standard & Poor's 500 Index, which had been up as much as 17 points, finished up 4 points to just under 1,340. The Nasdaq Composite Index, up as many as 39 points, closed up just 10 points to 2,404.

Financial stocks had a better day today after getting drubbed on Wednesday. Citigroup (C, news, msgs) was the second-best performer among the 30 Dow stocks, with a 3.1% gain to $19.89. The Select Sector SPDR-Financial (XLF, news, msgs) exchange-traded fund, which is supposed to mirror the financial sector of the S&P 500, was up 2.7% to $23.02.

The market had erupted after the release of a better-than-expected government report on retail sales in May and as crude oil moved sharply lower behind a dollar rally that also pushed interest rates higher.

The trend turned when crude oil started to rebound, pushed higher by rising gasoline futures, which closed up 6 cents, or 1.7%, to $3.526 a gallon. The retail price of gasoline was $4.06 a gallon, up a penny from Wednesday. The gasoline rally was prompted by problems in Nigeria and reports of refinery outages on the East Coast.

Yahoo was one of the biggest reasons for the Nasdaq's pullback. Yahoo announced that talks with Microsoft (the publisher of MSN Money) have ended with no deal. Microsoft officials reportedly told Yahoo they were no longer interested in buying the company even at $33 a share, The Wall Street Journal said.

Later reports quoted Microsoft officials saying the company was interested in an alternative to a full takeover of Yahoo.

Yahoo shares promptly plunged, finishing the day down 10% to $23.52, second-worst among stocks in the Nasdaq-100 Index ($NDX.X).

The shares jumped up 2% to $23.98 in after-hours trading as asearch-advertising pact with Google (GOOG, news, msgs) was announced late today.

Yahoo said it will display some ads sold by Google that may generate some $800 million in annual revenue. In the first 12 months following implementation, The Wall Street Journal reported, Yahoo expects the deal to generate an estimated $250 million to $450 million in incremental operating cash flow.

Microsoft shares jumped 4.1% to $28.24, the biggest gainer among the 30 Dow stocks, adding 9 points to the blue chips' gain today. Google was up 1.4% to $552.95.

Apple (AAPL, news, msgs) had a bigger impact on the Nasdaq and on the Nasdaq-100. The stock was down 4.2% today to $173.26. Apple had fallen Wednesday on concern about the health of CEO Steve Jobs.

The Nasdaq-100 finished even at 1,924. But Apple knocked the index 11 points lower by itself.

CPI report could produce a big day

Today's disappointing fade sets up another dramatic day Friday when the Labor Department will issue its consumer price index report for May. Thomson Financial said economists are expecting a 0.5% increase overall for the index with a 0.2% increase for the core rate. The latter excludes food and energy.

The CPI gain in April was 0.2% overall, but gasoline and food prices surged in May.

If the report is better than expected, look for stocks to open higher. A bad number could set off more selling.

Last Friday, the unemployment rate for May was higher than expected, and the Dow fell 395 points. Things have improved little this week. The Dow is off 0.6%, and the S&P 500 is down 1.5%. The Nasdaq is off 2.8%.

Energy prices -- New York close

	Thur.	Wed.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$136.74	$136.38	$0.36	7.37%	42.47%
Heating oil (per gallon)	$3.9427	$3.9748	-$0.0321	7.53%	48.81%
Natural gas (per million BTU)	$12.7980	$12.6600	$0.1380	9.36%	71.03%
Unleaded gasoline (per gallon)	$3.5260	$3.4658	$0.0602	5.31%	41.56%

Love those tax-rebate checks

Americans spent their tax-rebate checks last month, and Wall Street was delighted -- at least until oil prices started rising again.

The Commerce Department said retail sales rose 1% in May. That was up from a revised gain of 0.4% in April, and was the largest monthly growth in six months. Economists had expected a 0.6% gain.

Excluding autos, retail sales rose 1.2% last month, ahead of the 0.8% rise that had been expected. Sales were led by gains at gasoline stations and in building materials.

Retail stocks were higher on the report. Dow component Wal-Mart Stores (WMT, news, msgs) was up 1% to $59.11; auto parts retailer Pep Boys-Manny Moe & Jack (PBY, news, msgs) was up 6% to $9.74. The Standard & Poor's Retail Index($RLX.X) rose 1.6% to 385.

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

What happens after rebates run out?

"The strong sales growth across the rest of the retail sector . . . suggests consumers are wasting no time spending their economic stimulus checks," David Resler, chief economist at Nomura Securities, wrote in a note to clients. "The (surprising strength) across a broad swath of the retail sector indicates consumer spending may be growing much faster than expected in the current quarter."

But Resler was cautious looking forward: "If the growth upgrade is attributable to faster spending of the stimulus checks, spending could slow more abruptly when these windfalls have been exhausted."

• Rebate checks: What if we spent every penny?

There seems to be little hope for quick relief from rising gas prices. The average price of regular gasoline hit another record today, at $4.06, according to the AAA Fuel Gauge report.

In recent weeks retail has presented a mixed picture. Spending on discretionary items has flagged, but discount retailers dealing in consumer staples -- notably Wal-Mart Stores -- have been doing well as more consumers have focused on necessities.

Shakeup at Lehman

Troubles at Lehman Bros. (LEH, news, msgs) took a toll on two top executives.

The company said Chief Financial Officer Erin Callan, one of Wall Street's top female executives, is returning to Lehman's investment-banking division; Ian Lowitt will take over as CFO. Bart McDade will replace Chief Operating Officer Joseph Gregory.

Shares of Lehman initially sank about 5% on the news, indicating that investors wanted more to be done to fix things at the company. But the stock recovered a little, finishing the day down 4.4% to $22.70. The stock has fallen 70% over the past year.

Earlier this week, Lehman pre-announced its second-quarter results, which were a disaster. Lehman reported losing $2.8 billion in the quarter, far worse than analysts had expected. Lehman also said it was planning to raise $6 billion in capital.

Lehman's executive changes came as a surprise, KBW analyst Lauren Smith told CNBC -- and could signal a possibility that Lehman's second-quarter results will be even worse when they are formally released on Monday.

"I've always held the management team in high regard," but there is some loss in confidence now, Smith said. "There is a broader macro issue that is hurting everyone, just in different degrees. I think Lehman is playing a little bit of catch-up."

Meanwhile, Morgan Stanley today raised the U.S. financial sector to "neutral" from "underweight," citing "an improvement in a number of underlying drivers."

The S&P Banking Index($BIX.X) was up 1.8% to 199, and the Amex Securities Broker/Dealer Index ($XBD.X) rose 1.2% to 155.

Bud to go Belgian or Mexican?

Those frogs in the Budweiser commercials might have to take language lessons. Belgian brewer InBev (BE:INB, news, msgs) late Wednesday offered $65 per sharein cash for Anheuser-Busch (BUD, news, msgs), a deal valued at $46 billion.

• Talk back: Should a non-U.S. company own Anheuser-Busch?

Talk of an offer has been circulating for weeks, lifting Anheuser-Busch shares by 13% over the past month. Shares jumped 5.2% today to $61.40. InBev shares rose 6.2% to €50.21 in trading in Belgium but are down 24% since peaking in October 2007.

"The board will pursue the course of action that is in the best interests of Anheuser-Busch's stockholders," Anheuser-Busch said in a statement.

And late today, The Wall Street reported that Anheuser-Busch has begun talking to Grupo Modelo (GPMCY, news, msgs) about a possible combination that could help the maker of Budweiser thwart InBev's bid.

Citing sources, The Journal said that Anheuser-Busch approached Carlos Fernandez, chief executive of Modelo and an Anheuser-Busch director, about a deal in recent weeks, after news surfaced that InBev was weighing a bid for Anheuser-Busch.

Anheuser already owns a roughly 50% non-controlling stake in Modelo and could potentially thwart InBev's approach by buying the rest of Modelo, making the combined company too big for InBev to swallow.

In an effort to ease concerns about its proposed takeover of Anheuser-Busch, InBev late Wednesday released a statement asserting that no breweries would be closed in the wake of a merger.

InBev said this morning on a conference call that it wants a friendly deal. InBev also said it would consider selling some non-core Anheuser-Busch assets to help fund the bid; earlier this morning, the Belgian brewer said it has "strong support" from banks regarding financing of the deal.

• MSN's Stock Challenge: Win $15,000!

There is "little geographic overlap," Wachovia analyst Jonathan Feeney told CNNMoney. "China is the only shared market with manufacturing assets, aside from one Anheuser-Busch facility in the U.K., which leads us to believe that InBev would focus its efforts on streamlining the U.S. beer giant, a possibility which might not sit well with Anheuser-Busch distributors."

InBev is the second-biggest brewer in the world by volume, followed by Anheuser-Busch. The biggest is SABMiller.

InBev's bid caused some interest in brewing stocks. Molson Coors (TAP, news, msgs) was up 2.4% to $57.97. Boston Beer (SAM, news, msgs) Boston Beer, the maker of Sam Adams beers, added 1.3% to $40.25.

KeyCorp to raise capital

Regional bank KeyCorp (KEY, news, msgs) said today it is raising $1.5 billion in new capital, a move to help offset a second-quarter charge of between $1.1 billion and $1.2 billion related to litigation surrounding a leveraged lease case.

KeyCorp will raise the capital by selling common shares and convertible preferred stock.

The bank also said that it will cut its quarterly dividend by 50%, to an annualized payout of 75 cents a share.

Shares fell 24% to $11.98.

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

	Thurs.	Wed.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	1.950%	1.905%	0.045	5.41%	-37.90%
5-year Treasury note yield	3.663%	3.469%	0.194	7.51%	6.02%
10-year Treasury note yield	4.205%	4.073%	0.132	3.93%	4.21%
30-year Treasury bond yield	4.764%	4.702%	0.062	1.21%	6.84%
Currencies
U.S. Dollar Index	74.290	73.235	1.055	1.84%	-3.14%
British pound in dollars	$1.9474	$1.9646	-0.0172	-1.81%	-2.10%
Dollar in British pounds	£0.5135	£0.5090	0.0045	1.84%	2.15%
Euro in dollars	$1.5423	$1.5564	-0.0142	-0.88%	5.52%
Dollar in euros	€ 0.6484	€ 0.6425	0.0059	0.88%	-5.23%
Dollar in yen	107.93	106.81	1.12	1.45%	-3.50%
Canadian dollar in U.S. dollars	$0.978	$0.981	-$0.0033	-2.92%	-1.54%
U.S. dollar in Canadian dollars	$1.023	$1.019	$0.0039	2.99%	1.55%
Commodities
Gold	$872.00	$882.90	-$10.90	-1.72%	4.06%
Copper	$3.5415	$3.5810	-$0.04	-1.79%	16.46%
Silver	$16.4850	$16.8550	-$0.37	-2.25%	10.49%
Corn	$7.0900	$7.0325	$0.06	18.31%	55.65%
Crude oil (NYMEX) (per barrel)	$136.74	$136.38	$0.36	7.37%	42.47%