Bears back in control

NEW YORK (CNNMoney.com) -- Stocks fell Wednesday as rising Treasury yields outweighed lower oil prices and a $22.5 billion stock buyback plan by Home Depot.

The Dow Jones industrial average (down 48.53 to 13,586.89, Charts) sank almost 0.5 percent with less than 90 minutes left in the session. The broader S&P 500 (down 8.93 to 1,524.77, Charts) index slipped 0.7 percent, while the tech-laden Nasdaq (down 9.20 to 2,617.56, Charts) composite index fell about 0.4 percent.

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Treasury yields, which helped put stocks into positive territory during Tuesday's session, moved higher with the 10-year benchmark yielding 5.13 percent, up from 5.08 percent Tuesday.

Investors have worried recently that surging bond yields could further damage the already battered housing market and crimp consumer spending. On top of that, higher rates could slow corporate borrowing, which has fueled much of the recent merger activity that's helped lift stocks this year.

Those fears, combined with concerns that the Federal Reserve may be forced to raise interest rates later this year, prompted the recent Treasury bond selloff that pushed the yield on the 10-year note to a five-year high. Bond prices and yields move in opposite directions.

Oil prices tumbled after the government reported that weekly crude and gasoline supplies rose much more than expected. U.S. light crude for July delivery sank $1.10 to $68 a barrel.

In corporate news, Home Depot (up $2.49 to $40.76, Charts, Fortune 500) shares jumped about 7 percent in active trading after the home improvement retailer announced late Tuesday a plan to repurchase $22.5 billion worth of stock. It also said it would sell its building supply unit to a group of private equity firms for $10.3 billion.

But without any major economic reports issued Wednesday, stocks failed to find much momentum in either direction.

Hugh Johnson, chairman of asset management company Johnson Illington Advisors, blamed the market's recent sideways movement on investor speculation that the market is overvalued at a time when both the economy and earnings growth is slowing.

"Investors are becoming somewhat cautious because stocks are now overvalued," said Johnson. "The point is we've come too far, too fast."

Morgan Stanley (Charts, Fortune 500) shares gained more than 2 percent in afternoon trade on the New York Stock Exchange after the No. 2 Wall Street bank reported better-than-expected second-quarter earnings that jumped 40 percent.

Package delivery company FedEx (up $2.12 to $110.18, Charts, Fortune 500) barely beat analyst estimates, sending its shares nearly 2 percent higher.

And consumer electronics retailer Circuit City Stores Inc. (up $0.09 to $16.16, Charts, Fortune 500) reported disappointing profits and warned about future earnings growth.

In major corporate news, Merrill Lynch (down $0.73 to $89.31, Charts, Fortune 500) has seized about $800 million of assets from two Bear Stearns (down $1.89 to $144.90, Charts, Fortune 500) hedge funds, which are heavily invested in securities backed by subprime mortgages, putting their future in doubt.

Shares of the mutual fund manger Nuveen Investments (up $9.13 to $63.29, Charts) soared nearly 17 percent after the company agreed Wednesday to a $5.75 billion buyout by a group of investors led by private equity firm Madison Dearborn Partners LLC.

Billionaire investor Kirk Kerkorian's Tracinda Corp. said Wednesday it was no longer interested in purchasing assets of the casino operator MGM Mirage, which include the Bellagio and City Center properties. MGM (down $6.22 to $80.28, Charts, Fortune 500) shares tumbled on the news.

Rupert Murdoch's News Corp. (up $0.05 to $23.73, Charts, Fortune 500) may swap its social networking site MySpace for a 25 percent stake in the No. 2 search engine Yahoo (up $0.21 to $27.84, Charts, Fortune 500), a newspaper reported.

U.S. Treasury Secretary Henry Paulson said in prepared testimony before a House committee Wednesday that China is helping drive global growth but warned that economic reforms are needed to increase domestic consumption and reduce reliance on investment and exports to drive growth in the country.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by nearly 2 to 1 on volume of 894 million shares. On the Nasdaq, decliners also topped advancers by the same ratio on volume of 1.11 billion shares.

On a sector basis, energy, oil and natural gas indexes fell by 1 percent or more. Leading the gainers was the airline and retail sectors.

Among individual issues, 22 of the 30 Dow components fell.

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

COMEX gold for August delivery fell $2.70 to $662 an ounce.