Stocks dip on economic woes
Weaker durable goods orders report drags on Wall Street, while Yahoo-Microsoft partnership sparks sour reaction.
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NEW YORK (CNNMoney.com) -- Stocks trimmed losses by the close Wednesday, but remained in the red after a weak durable goods orders report added to worries about the economy and investors soured on Yahoo's partnership with Microsoft.
The Dow Jones industrial average (INDU) lost 26 points, or 0.3%. The S&P 500 (SPX) index fell 4 points, or 0.5%. The Nasdaq composite (COMP) gave up 8 points, or 0.4%.
In addition to the day's news, Wall Street was also vulnerable to a pullback in the wake of a big two-week rally that lifted the Dow and S&P 500 by more than 11% and the Nasdaq by 12%.
The rally was sparked by a series of better-than-expected quarterly results. But with more than half of the S&P 500 companies yet to report, investors are showing a little caution.
"It's basically a too far, too fast scenario," said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams.
He said the durable goods orders report follows other recent indications that the economy continues to be "less bad" rather than better. He pointed to housing reports released earlier in the week that were better-than-expected, but showed improvement mostly due to low prices and foreclosure sales.
On Tuesday, a weaker-than-expected consumer confidence report and a tepid response to a 2-year note auction sparked a selloff. A similarly lukewarm reaction to Wednesday's 5-year note auction added to the weakness in the stock market.
As for Yahoo, Rovelli said there is a perception that it dropped the ball by not securing money from Microsoft upfront, as had been expected.
Thursday brings the weekly jobless claims report from the Labor Department. In addition, quarterly results are due from Dow components Exxon Mobil (XOM, Fortune 500), Travelers (TRV, Fortune 500) and Walt Disney (DIS, Fortune 500).
Economy: U.S. durable goods orders plunged 2.5% in June, a far bigger decline than economists were expecting. The drop revived some worries that the economy may not be stabilizing as quickly as investors have been betting.
Orders for long lasting manufactured goods saw the biggest monthly decline since January, the Commerce Department reported. Orders rose a revised 1.3% in May. Economists surveyed by Briefing.com thought orders would fall 0.6%.
However, orders excluding transportation rose 1.1% versus forecasts for no change. Last month, the same measure rose 0.8%.
Around 2 p.m. ET, the Federal Reserve released its periodic "Beige Book" survey of economic conditions in its twelve districts. The report showed that economic activity remained weak -- but for most districts, the pace of the decline has slowed.
Stocks showed little reaction to the report.
Microsoft-Yahoo: The tech bellwethers have finally completed a 10-year search deal that takes aim at Google's dominance in the online market.
Yahoo (YHOO, Fortune 500) will use and promote Microsoft (MSFT, Fortune 500)'s Bing search engine on its site. In exchange, the company will keep 88% of the revenue from all search ad sales for the first five years. Yahoo will also have the right to sell ads on some Microsoft sites.
However, investors expressed some disappointment that Yahoo will not receive an upfront payment, sending its shares down by 12%.
Microsoft attempted to buy Yahoo outright for $47.5 billion last year, but was rebuffed by the company. Microsoft shares gained 1.4% Wednesday.
Oil prices and stocks: U.S. light crude oil for September delivery fell $3.88 to settle at $63.35 a barrel on the New York Mercantile Exchange.
Oil stocks declined in tandem, with Dow components Chevron (CVX, Fortune 500) and Exxon Mobil (XOM, Fortune 500) both slipping. The Amex Oil (XOI) index lost 2%.
Quarterly results: CNNMoney.com parent Time Warner (TWX, Fortune 500) reported weaker quarterly earnings that beat estimates on weaker revenue that missed estimates. Shares fell 1.8%.
Sprint Nextel (S, Fortune 500) reported weaker quarterly sales and earnings as subscribers continued to decline. Shares fell 12%.
Bonds: Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.66% from 3.68% late Tuesday. Treasury prices and yields move in opposite directions.
Other markets: In global trading, European markets mostly ended higher and Asian markets ended lower.
In currency trading, the dollar gained versus the euro and the Japanese yen.
COMEX gold for December delivery fell $12 to settle at $929.70 an ounce.
Market breadth was negative. On the New York Stock Exchange, losers beat winners three to two on volume of 1.25 billion shares. On the Nasdaq, decliners topped advancers eight to five on volume of 2.1 billion shares. 
