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Stocks pull off earlier highs, financials retreat

INVESTORS slowed their hectic buying of stocks yesterday, leaving the major indexes little changed after a four-day advance.

Stocks pulled back from their early highs as financial stocks, which had been surging, retreated. Meanwhile, Treasury prices rallied ahead of the latest round of debt auctions.

Analysts had expected a pause after stocks soared last week, lifting the Dow Jones industrials 370 points. The advance picked up momentum Friday after Federal Reserve Chairman Ben Bernanke declared that the economy is on the verge of recovery.

"I think people still believe there are signs of recovery here, but it doesn't hurt to take a little bit of profits," said Alan Villalon, senior research analyst at First American Funds.

Market experts have been warning, though, that the market's upbeat mood could be tested with reports this week on consumer confidence and housing. Some signs of recovery have emerged already in the housing market, but consumers are still struggling. Improved consumer confidence and spending is widely seen as one of the keys that could help end the recession.

"We're lining up here in advance of the data this week," said James Cox, managing partner at Harris Financial Group. "This is a good time to get out."

Bank shares gave up some of their early gains and traded mixed, weighed down by losses among regional banks. Investors have been worried that smaller banks could face significant hardships in the coming months as losses among commercial real estate loans pile up.

In a research note late Sunday, Rochedale Securities banking analyst Richard Bove predicted that 150 to 200 more U.S. banks could fail in the current banking crisis on top of the 81 banks that have already failed this year, putting greater stress on the Federal Deposit Insurance Corp.'s deposit insurance fund.

The Dow rose 3.32, or less than 0.1 percent, to 9,509.28, after earlier rising as much as 82 points. The Standard & Poor's 500 index fell 0.56, or 0.1 percent, to 1,025.57, while the Nasdaq composite index fell 2.92, or 0.1 percent, to 2,017.98.

Advancing issues were slightly ahead of losers on the New York Stock Exchange, where volume came to 1.23 billion shares.

In other trading, the Russell 2000 index of smaller companies slipped 1.27, or 0.2 percent, to 580.24.

Bond prices rose as investors prepared for US$197 billion in auctions this week. The yield on the benchmark 10-year Treasury note fell to 3.48 percent from 3.57 percent late Friday, while the yield on the three-month T-bill fell to 0.15 percent from 0.16 percent.

The markets have been choppy lately as investors react to mixed economic data, but so far there hasn't been a big pullback as many have expected. The Standard & Poor's 500 index is up 52 percent since early March.

"We still think there is a lot of fear out there," said Ryan Detrick, chief technical strategist at Schaeffer's Investment Research. "The economy has to validate what the stock market has done."

Justin Golden, strategist at Macro Risk Advisors in New York, said some of the market's recent gains have been magnified by short-covering, in which investors have to buy stock after having earlier sold borrowed shares in a bet they would fall.

"A lot of bear investors have thrown in the towel," he said. "That shouldn't be confused with people being ultra bullish about the market."

There were no major economic reports yesterday, but investors are anxious ahead of the Conference Board's monthly consumer confidence index today, and the Reuters/University of Michigan report on consumer sentiment on Friday. The Standard & Poor's/Case-Shiller index on home prices for June will be released today, while the Commerce Department will report on new home sale for July tomorrow.


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