Stocks: blue chip bust

NEW YORK (CNNMoney.com) -- Blue chips slumped Thursday afternoon, falling for a second session, as investors eyed rising oil prices and a jump in Treasury bond yields and opted to take a step back.

The Dow Jones industrial average (down 56.56 to 12,681.85, Charts) lost 0.5 percent with 2 hours left in the session, while the broader S&P 500 (down 2.32 to 1,455.31, Charts) index lost 0.2 percent.

The Nasdaq (down 1.56 to 2,516.86, Charts) composite was little changed, giving back morning gains.

Technology shares had risen in the morning, thanks to upbeat earnings from chipmaker Analog Devices and the end of Cisco and Apple's trademark dispute. A merger in the grocery sector had added to the market's early strength.

But the advance petered out by the late morning as investors considered rising oil prices amid a surprise dip in weekly energy inventories and a U.N. report that Iran has missed the deadline to suspend nuclear activities.

In addition to Iran, there were also geopolitical rumors concerning Syria and other areas of the world, said David Briggs, head of equity trading at Federated Investors. "I think that's what the market has been reacting to today and that's what oil is reacting to now," he said.

However, news that Iran is not complying with the U.N. was not particularly surprising, he added, and the stock selloff may just reflect investors getting a little antsy after the recent advance.

Concerns about inflation sent blue chips lower Wednesday too, one session after the Dow closed at a record high and the S&P 500 and Nasdaq closed at six-year highs.

Blue chips led the downturn, with 25 out of 30 Dow components falling. Losers included Hewlett-Packard (down $0.16 to $40.94, Charts), Merck (down $0.65 to $43.30, Charts) and General Motors (down $0.58 to $34.79, Charts).

Whole Foods (up $6.05 to $51.75, Charts) said late Wednesday that it will buy rival Wild Oats Markets (up $2.70 to $18.42, Charts) for around $565 million in cash. The deal sent both Whole Foods and Wild Oats stock higher Thursday in active Nasdaq trading.

Cisco (up $0.04 to $27.42, Charts) and Apple Computer (up $0.08 to $89.28, Charts) said late Wednesday that they have reached an agreement so that both can use the iPhone name. The stocks were little changed in the afternoon, giving back morning gains. (Full story).

Analog Devices (up $3.31 to $36.63, Charts) rallied 10 percent after the maker of signal processors posted a higher-than-expected quarterly profit late Wednesday and issued an upbeat current-quarter forecast.

A number of Analog competitors rose too, including Texas Instruments (up $0.87 to $31.85, Charts) and Linear Technology (up $2.63 to $34.00, Charts).

Fellow chipmaker National Semiconductor (up $1.52 to $25.17, Charts) rallied on a Morgan Stanley upgrade, Briefing.com reported.

Toll Brothers (down $0.83 to $32.03, Charts) reported sharply lower fiscal first quarter profit, reflecting the ongoing collapse of the housing market. The largest U.S. builder of luxury homes also lowered its fiscal 2007 forecast. Shares fell in the afternoon after seesawing in the morning.

A variety of homebuilding stocks declined in response to Toll Brothers, including Centex (down $1.25 to $49.40, Charts) and Hovnanian (Charts).

JC Penney (down $2.67 to $83.68, Charts) shares slipped after forecasting first quarter earnings that are short of forecasts. The department store chain also reported improved fourth-quarter earnings, but investors focused on the outlook.

Market breadth was negative. On the New York Stock Exchange, losers beat winners nine to seven on volume of 1 billion shares. On the Nasdaq, decliners topped advancers four to three on volume of 1.41 billion shares.

Treasury prices slipped, raising the yield on the benchmark 10-year note to 4.74 percent from 4.68 percent late Tuesday. Treasury prices and yields move in opposite directions.

In currency trading, the dollar gained versus the euro and the yen.

U.S. light crude oil for April delivery rose 63 cents to $60.70 a barrel on the New York Mercantile Exchange after the weekly oil inventories report showed a large drop in gasoline and oil inventories.

COMEX gold for April delivery fell $1.20 to $682.80 an ounce.

In other news, the number of Americans filing new claims for unemployment last week fell 27,000 to 332,000, a smaller than expected decline.

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