Stocks falter to start the week
Major indexes slump after a high-profile deal falls through and geopolitical tensions arise.
NEW YORK (CNNMoney.com) -- Stocks fell Monday, closing lower on one of the final trading days of a dismal year, amid global tensions and downbeat corporate news.
The Dow Jones industrial average (INDU) settled down 0.4%, or 32 points, after falling more than 1.5% at one point. The broader Standard & Poor's 500 (SPX) index retreated 0.39%. The Nasdaq composite (COMP) fell 1.3%.
Oil prices rose more than 6% in volatile trade. U.S. Treasurys advanced and the dollar weakened against rival currencies.
Trading has been subdued recently, with many investors on vacation or holding off on large transactions until 2009. On Friday, stocks drifted higher in a thinly traded session but still ended the week lower.
For the year, all three major indexes are down sharply: The Dow is off nearly 36% versus last year; the S&P 500 has tumbled 41%; and the Nasdaq is off 42%.
Looking ahead, the Conference Board is due to release its December index of consumer confidence Tuesday morning. The index is expected to rise to a reading of 45.2 from 44.9 in November, still near the lower end of its historic range.
Also on Tuesday, a survey of purchasing managers in the Chicago area is expected to reveal further declines in manufacturing activity.
Monday's retreat came despite a lack of economic data, and many analysts warned that low participation could be amplifying the selloff.
"There's no buying going on," said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams in New York. "Everyone is sitting on their hands until the end of the year."
Market breadth was negative. Decliners topped advancers nearly 2-to-1 as 8.9 million shares changed hands on the Dow.
Still, the collapse of a high-profile venture and concerns about the world's political situation weighed on the market.
Dow Chemical: Shares of the nation's largest chemical company plummeted after a major deal with Kuwait's state-run petrochemical company fell apart.
Petrochemical Industries Co. decided Sunday to scrap a $17.4 billion deal to form a joint venture with Dow Chemical (DOW, Fortune 500), citing the recent decline in oil prices.
The news called into question Dow's ability to repay some $13 billion in debt it will take on once its acquisition of rival Rohm & Haas (ROH, Fortune 500) closes in early 2009.
Dow's stock fell nearly 19% and Rohm & Haas was down 16% on the news.
"The Dow news started the day off with a negative tone," said Quincy Krosby, chief investment strategist at The Hartford. Investors are concerned that "we're going to see more companies backing out of deals based on market conditions," she added.
At the same time, "geopolitical risk has crept back into the market," Krosby said.
Global tension: Investors are afraid that ongoing strife in the Middle East and tensions between India and Pakistan could destabilize fragile markets overseas.
"There's a lot of uncertainty in the world, which gives people less incentive to buy stocks," Rovelli said.
Israeli warplanes struck the Gaza Strip for a third day in response to mortar and rocket attacks. The attacks caused a short-lived rally in the oil market, with crude spiking above $42 a barrel Monday before retreating a bit, settling up $2.31 to $40.02 a barrel.
While the air strikes do not pose an immediate threat to oil installations, many analysts worry that the conflict could disrupt production in the oil-rich Middle East region.
Meanwhile, shares of oil companies, such as Chevron (CVX, Fortune 500) and Exxon Mobil (XOM, Fortune 500) both rose moderately.
The market is also concerned about a possible confrontation between India and Pakistan over last month's militant attack on Mumbai.
Pakistan has denied reports that it has deployed large numbers of troops to its border with India in anticipation of military action. India blames Pakistan-based militants for the assault in which 179 people were killed.
IndyMac: A consortium of private equity and hedge fund firms, including J.C. Flowers & Co and Dune Capital Management, is reportedly close to a deal to buy the assets of failed mortgage lender IndyMac.
The group would buy the bank and its 33 branches, IndyMac's reverse-mortgage unit and a $176 billion loan-servicing portfolio, according to published reports.
IndyMac's bank unit, which had exposure to the sub-prime real estate market, was seized by the government in July in one of the largest bank failures in U.S. history.
Bank stocks were mostly lower despite the news. Citigroup (C, Fortune 500), Bank of America (BAC, Fortune 500) and J.P. Morgan (JPM, Fortune 500) all retreated.
Other markets: In Europe, markets reopened after an extended Christmas break. London's FT-100 rose 2.4%, Frankfurt's DAX gained 1.6%, and Paris' CAC-40 closed 0.4% higher. Asian markets ended mostly higher, with Tokyo's Nikkei index up 0.1%.
Light, sweet crude for February delivery was rose $2.31 to settle at $40.02 a barrel on the New York Mercantile Exchange. It had briefly traded above $42 a barrel earlier in the session.
Prices for U.S. Treasurys rose. The benchmark 10-year note added 10/32 to 114 20/32 and its yield fell to 2.10% from 2.16% Friday.
The dollar fell versus the euro and the yen.
COMEX gold for February delivery rose $4.20 to settle at $874.60 an ounce.
Gasoline prices fell 0.8 cents to a national average of $1.619 a gallon, according to a survey of credit-card swipes released Monday by motorist group AAA.
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