Dow, Nasdaq post slight gains

Stocks barely budged Monday, ending narrowly mixed after yields on the 30-year Treasury note briefly hit 5% and investors grew skittish a day ahead of the Federal Reserve’s first meeting of the year.

After a volatile week in which stocks lost ground, merger and acquisition news gave a boost to stocks for much of the session before the 30-year yield moved higher. Merrill Lynch agreed to acquire wealth manager First Republic Bank for $1.8 billion in cash and stock and Citigroup struck an agreement to buy British insurer Prudential’s Egg Banking, an Internet bank, for about $1.13 billion.

Many on Wall Street were girding for a busy week of economic and earnings news as they tried to determine whether an indecisive market could resume its advance from the second half of 2006. A two-day Fed meeting begins today, after which investors will receive the central bank’s latest read on the economy and interest rates, and a torrent of fourth-quarter earnings reports is due. The Fed has left short-term interest rates unchanged at its last four meetings.

“The market really can’t find any direction,” said Todd Leone, managing director of equity trading at Cowen & Co., describing recent sessions as “rudderless” ahead of the Fed meeting. He said investors appeared unnerved after the 30-year Treasury note’s yields moved higher.

The Dow Jones industrial average rose 3.76 points, or 0.03%, to 12,490.78.

Broader stock indicators were mixed. The Standard & Poor’s 500 index fell 1.56 points, or 0.1%, to 1,420.62, and the Nasdaq composite index gained 5.60, or 0.2%, to 2,441.09.

Yields on the 30-year Treasury note hit 5% and then slipped back to 4.99% as investors wrestled with questions over the direction of interest rates. The Fed sets short-term interest rates -- the rates banks charge each other for overnight loans -- but the central bank’s pronouncements can affect all interest rates.

The yield on the benchmark 10-year Treasury note rose to 4.89%, up from 4.87% on Friday.

Oil fell sharply, though not enough to send the major indexes higher. Oil settled down $1.41 at $54.01 a barrel on the New York Mercantile Exchange amid concerns that OPEC members would increase production. Exxon Mobil fell 41 cents to $73.20, while ConocoPhillips slipped 15 cents to $64.62.

Denis Amato, chief investment officer at Ancora Advisors, said that although the buyout news Monday could give stocks a short-term boost, he believes that investors haven’t reconciled their hopes with reality as far as the Fed stands.

“I think [the market] still needs to come to terms with the fact the Fed is probably not going to drop interest rates anytime soon,” Amato said.

In other market highlights:

* Leading the buyout news was Merrill Lynch’s plan to acquire First Republic Bank. As is typical for the company doing the acquiring, Merrill fell, ending down $2.14 at $92.39. First Republic jumped $15.33 to $53.63. Citigroup, meanwhile, was off 61 cents at $54.06.

* Drug developer MDS agreed to acquire Molecular Devices, which makes bioanalytical measurement systems, for $615 million. MDS rose 32 cents to $20.42, while Molecular Devices jumped $11.19 to $35.07.

* Bristol-Myers Squibb jumped $1.22 to $27.43, its highest since March 2004. The company and Sanofi-Aventis last week signed a preliminary agreement to merge, French newsletter La Lettre de l’Expansion reported without citing anyone. The combination would create the world’s second-largest drug maker behind Pfizer.

“I am not ready to answer this question,” Sanofi Chairman Jean-Francois Dehecq said in an interview when asked about the reported talks.

* Bowater and Canada’s Abitibi-Consolidated agreed to an all-stock deal in which Bowater shareholders would hold a 52% stake and make the combined company the third-largest publicly traded paper and forest products company in North America. Bowater rose $5.29 to $27.44, while Abitibi jumped 83 cents to $3.94.

“I think it’s indicative that there is still a lot of liquidity sloshing around. The capitalization rates that seem to be implied aren’t really great so it’s kind of amazing that they’re able to get the money to do it,” Amato of Ancora Advisors said, questioning whether a bump in the economy could cause such deals to dry up as liquidity shrinks.

* Earnings from Verizon Communications met with a tepid response from investors although the telecommunications company’s per-share earnings came in a penny ahead of Wall Street’s forecast. Verizon gained 20 cents to $38.03.

* Tyson Foods rose 59 cents to $17.28 after the meat producer’s fiscal first-quarter profit jumped 46% as it saw increased chicken sales and lower costs.

* Overseas, Japan’s Nikkei stock average closed up 0.3%. Britain’s FTSE 100 ended up 0.2%, while Germany’s DAX index finished up 0.5%, and France’s CAC-40 rose 0.7%.

Bloomberg News was used in compiling this report.