Stocks gave up an early rally Friday after a weak construction spending report and a warning from Moody's that it will likely downgrade bond insurers offset enthusiasm over Microsoft Corp.'s bid for Internet company Yahoo Inc.
The market began the day with investors pleased by Microsoft's bid of $31 per share for Yahoo, for a total of $44.6 billion. The offer represents a 62 percent premium to Yahoo's closing stock price Thursday. Merger news, which has been in short supply for months, tends to energize the stock market, and the bid for Yahoo put the market in a good mood.
But a mix of economic news reminded investors of the continuing fallout from the housing and mortgage crisis.
The first blow came from the Labor Department's worrisome employment report for January. The economy lost 17,000 jobs, marking the first contraction of the labor market in more than four years. The news confounded economists, who were expecting 70,000 new jobs, according to Thomson/IFR.
The news was somewhat mitigated by an upward revision to November payrolls and news that the unemployment rate ticked lower to 4.9 percent last month from 5.0 percent in December.
The Commerce Department added to the fray, reporting that construction spending dropped 1.1 percent in December — twice what analysts expected and the most in 15 months.