1:00PM NY, 5:00 PM Frankfurt European markets closed down, dragged by rate worries. A sharp decline in BAE Systems shares weighed

European stock markets finished in the red on Tuesday, weighed down by continuous worries over interest rates and the subprime-mortgage market. In addition, a steep decline was posted by shares of BAE Systems, falling 7.8% after a U.S. anti-corruption probe into Britain''s top arms dealer.

Among other notable losers, shares of Spanish energy giant Iberdrola dropped 3.8% after it announced an agreement to buy Maine-based Energy East Corp. in a $4.5 billion (3.4 billion euros) deal. Outside deal news, shares of Arcelor Mittal dropped 3.5% after the steelmaker was downgraded to neutral from buy at Merrill Lynch. Insurance giant Allianz declined 2.3%, while BNP Paribas slipped 1.3%. In the automotive sector, Porsche slipped 3.9% as investors focused on lack of growth in the company.

On the positive side, shares of British credit-checking firm Experian added 1.9% after it agreed to acquire 65% of Brazilian credit bureau Serasa from a consortium of Brazilian banks for $1.2 billion. The German DAX 30 dropped 0.9% at 7,860.52 and the French CAC-40 lost 0.8% at 5,953.36, the U.K.''s FTSE slipped 0.4% at 6,559.30.


11:30AM Market averages turned mixed on rate worries. Housing and resource stocks declined.

U.S. stock averages lost direction over the course of morning trading, as investors refrained from making big moves ahead if the Fed Reserve''s decision on interest rates later in the week. Slightly better-than-expected housing data and deal news failed to offset renewed worries about interest rates, the subprime mortgage market, and hedge fund woes.

Housing stocks came under pressure on lower home sales, followed by resource stocks which declined on weaker commodities prices. Homebuilder Lennar Corp. (LEN: chart) posted a Q2 loss and warned of further weakness. Lennar fell 1.9%, followed by other homebuilders. In the tech sector, Apple (APPL: chart) slipped 2.6% after the company together with AT&T (T: chart) unveiled prices for service plans to use Apple''s iPhone.

Meanwhile, some drug stocks moved notably higher, with Dow component Merck (MRK: chart) rising 2%. Wyeth (WYE: chart) and Bristol-Myers (BMY: chart) also stood out among gainers with an advance of 2% each. Ventana Medical Systems surged 49% after Roche Holding AG made a $3 billion hostile bid for the medical testing products maker. The tobacco and utilities sectors also posted gains.

In late morning trading, the Dow rose 32.51, or 0.24%, to 13,384.56. Johnson & Johnson (JNJ: chart) and AT&T (T: chart) supported the blue-chip average, rising 1.3% and 1.9%, respectively. The S&P 500 rose 1.06, or 0.07%, to 1,498.80, and the Nasdaq composite index slipped 0.02, or less than 0.01%, to 2,577.06. Bonds slipped after the new home sales data, with the yield on the benchmark 10-year Treasury note rising to 5.10% from 5.08% late Monday.

Consumer confidence index retreated in May.
Tuesday morning, the Conference Board released its report on consumer confidence in the month of June, showing that confidence fell by much more than economists had expected compared to the previous month. The Conference Board said its consumer confidence index fell to 103.9 in June from an upwardly revised 108.5 in the previous month. Economists had expected the index to edge down to 106.0 compared to the 108.0 originally reported for May.

The report showed that the present situation index fell to 127.9 in June from 136.1 in May. Those saying conditions are ‘good’ fell to 27.4 percent from 29.0 percent, while those saying conditions are ‘bad’ rose to 16.4 percent 14.6 percent. Consumers'' assessment of the job markets was also less positive, as those saying jobs are ‘hard to get’ rose to 21.1 percent from 19.7 percent, while those claiming jobs are ‘plentiful’ fell to 27.0 percent from 29.1 percent. The report also showed that the expectations index edged down to 87.9 in June from 90.1 in May. The Conference Board said that consumers remain guarded about short-term prospects, adding that the outlook for the labor market was mixed.

New home sales in May declined more than expected.
The Commerce Department released its report on new home sales in the month of May on Tuesday, showing that sales fell by more than economists had been expecting compared to the previous month. The report showed that new home sales fell 1.6 percent to an annual rate of 915,000 units in May from a revised 930,000 unit rate in April. With the decrease, new home sales were down 15.8 percent compared to May of 2006. Economists had been expecting new home sales to fall to a 925,000 unit rate in May compared to the 981,000 unit rate originally reported for the previous month.

The bigger than expected drop in new home sales was partly due to an 11.0 percent drop in new home sales in the Northeast. Sales in the South fell 7.3 percent and sales in the West edged down 1.9 percent, while new home sales in the Midwest surged up 30.8 percent. The report also showed that the median sales price of new houses sold in May was $236,100, down 0.9 percent year-over-year. Additionally, the Commerce Department said that the seasonally adjusted estimate of new houses for sale at the end of May was 536,000. This represents a supply of 7.1 months at the current sales rate.


9:45AM Wall Street opened above the flat line amid bargain hunting and merger deals.

Wall Street opened above the flat line, reflecting bargain hunting after recent weakness and merger-and-acquisition news ahead of a key report on the housing market.

Chemical company Huntsman (HUN: chart) surged 28% after division of billionaire investor Leonard Blavatnik''s Access Industries agreed to buy it for $5.6 billion. Under the terms of the agreement, Basell will acquire Huntsman''s outstanding common stock for $25.25 per share in cash, with the price representing a 34% premium over the company''s Monday closing stock price of $18.90. Again in M&A action, BlackRock (BLK: chart) added 1.6% after it agreed to buy the fund-of-funds business of Quellos Group for up to $1.7 billion.

In earnings news, homebuilder Lennar (LEN: chart) lost 1.2% after posting a quarterly loss and warning of further weakness. Kroger (KR: chart) fell 4.2% after it reported better-than-expected quarterly earnings and a gain in revenue. There were few pre-market quotes for the supermarket operator''s stock, but it should be active after the opening. Oracle (ORCL: chart) and Nike (NKE: chart) are scheduled to report after the closing bell. Target Corp. (TGT: chart) fell 0.5% after the retailer said that same-store sales in June will come at the low end of its forecast 3%-to-5% range.

In morning trading, the Dow Jones industrial average rose 13.08, or 0.10%, to 13,365.13. The Standard & Poor''s 500 index rose 2.49, or 0.17%, to 1,500.23, and the Nasdaq composite index gained 6.75, or 0.26%, to 2,583.83. Bonds fell slightly after the new home sales data, with the yield on the benchmark 10-year Treasury note rising to 5.09% from 5.08% late Monday.