Takeover news and speculation drove the Nasdaq composite index to its highest close in more than six years Tuesday, with casino and technology stocks leading the advance.
But the Dow industrials and the Standard & Poor's 500 index slipped as Treasury bond yields rose to three-month highs, raising concern that higher borrowing costs would slow the economy and limit corporate profit growth. For a second straight day, the S&P toyed with closing above its 7-year-old record high before finishing lower.
Despite the rising bond yields, home builders and mortgage lenders -- sectors usually allergic to higher interest rates -- rallied after Treasury Secretary Henry M. Paulson Jr. said the housing slump was largely over.
MGM Mirage led casino stocks higher after billionaire investor Kirk Kerkorian expressed interest in buying two Las Vegas properties from the company.
The Dow Jones industrials edged down 2.93 points to 13,539.95.
The S&P 500 index slipped 0.98 points, or 0.1%, to 1,524.12. The gauge, seen by many as the best indicator of the performance of U.S. stocks, briefly traded Monday and Tuesday above its record close of 1,527.46 set in March 2000.
The Nasdaq composite index, which has lagged behind the other major indexes in recovering from Wall Street's slump early in the decade, rose 9.23 points, or 0.4%, to 2,588.02.
The Russell 2000 index of smaller-company stocks rose 6.27 points, or 0.8%, to 839.92, surpassing the record close it set May 9. The large-cap Russell 1000 index and broader Russell 3000 indexes also set record closes for the second straight day Tuesday.
Advancing issues outpaced decliners by a 9 to 7 margin on the New York Stock Exchange.
Bonds yields climbed. The benchmark 10-year Treasury note's yield rose to 4.83% from 4.78% late Monday, in part because of a flood of corporate bonds into the market. The dollar rose against the yen and the euro, while gold prices fell.
Oil prices backed off their recent run. Crude futures fell $1.30 to $64.97 a barrel on the New York Mercantile Exchange.
The Treasury secretary's comments on cable channel CNBC fed speculation that demand for housing might rebound sooner than expected. The Dow Jones U.S. home construction index jumped 3.5%.
"The stars of the day are the home builders," said Michael Metz, chief investment strategist at Oppenheimer & Co. in New York. "Investors feel that the worst is over for those stocks."
