Wall Street retreated Tuesday as a huge decline in Home Depot Inc.'s profit last quarter offset excitement over the deal between XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc.
The world's largest home improvement store chain reported a 28 percent drop in fourth-quarter earnings, indicating that the home improvement industry is still being dragged down by the sluggish housing market.
But the wider retail sector still looked healthy after Wal-Mart Stores Inc. issued its financial results, which showed fourth-quarter profit growth of 8.8 percent, better than analysts expected, and an upbeat forecast for 2007.
Also keeping a floor under stocks was the buzz over new takeover activity. In addition to the merger between XM Satellite and Sirius announced Sunday, the markets also got a lift from Tuesday's news that British pharmaceutical company Shire PLC is buying U.S. drug maker New River Pharmaceuticals Inc. for about $2.6 billion (Ђ1.98 billion), and that Vulcan Materials Co. is buying construction aggregate maker Florida Rock Industries Inc. for $4.6 billion (EUR3.5 billion).
In early trading, the Dow Jones industrial average fell 37.41, or 0.29 percent, to 12,730.16, pulling back after rising more than 200 points over the past four trading sessions. Markets were closed Monday for Presidents Day.
Broader stock indicators also fell. The Standard & Poor's 500 index was down 4.74, or 0.33 percent, at 1,450.80, and the Nasdaq composite index was down 10.18, or 0.41 percent, to 2,486.13.
Bonds fell, with the yield on the benchmark 10-year Treasury note rising to 4.70 percent from 4.69 percent late Friday, even after the Federal Reserve Bank of Chicago reported in its index of business activity that economic growth in the region was below average in January.
The dollar rose against other major currencies, while gold prices fell.
Oil prices tumbled $1.49 to $57.90 on the New York Mercantile Exchange after the Iranian president said his country would stop enriching uranium and return to negotiations, but only if Western nations do so, too.
Home Depot fell 30 cents to $41.14 after reporting earnings that fell short of analysts' expectations.
Wal-Mart rose $1.28, or 2.6 percent, to $49.76 following its more optimistic financial results.
XM Satellite rose $1.39, or 10 percent, to $15.35, and Sirius Satellite rose 24 cents, or 6.4 percent, to $3.94, after their announced merger of equals. The deal still faces significant obstacles from the Federal Communications Commission.
Vulcan Materials Co. fell 60 cents to $111.21, while Florida Rock Industries Inc. soared $19.64, or 42 percent, to $66.58, after the acquisition announcement.
Meanwhile, Shire's proposed buy of New River caused the U.S. drug marker's stock to surge $5.21, or 8.9 percent, to $63.56. U.S. shares of Shire rose $1.92, or 3 percent, to $65.20.
The Russell 2000 index of smaller companies fell 3.55, or 0.43 percent, to 814.60.
On January 15, it was reported that the Russian government began to develop sanctions against several officials at the World Anti-Doping Agency (WADA)