US stocks declined as rally fatigue prevailed over Wall Street amid rising oil prices put a lid on animal spirits on Monday.

By the close, the S&P 500 fell 0.6 per cent to 1,203.60, while the Dow Jones Industrial Average eased 0.7 per cent to 10,766.23. The Nasdaq Composite shed 0.7 per cent to 2,051.72. The lockstep changes in the indices suggested the influence of momentum trading.

The sluggish start to the week came after a three-day rally put US markets at their highs for 2005. Weighing on the markets was a continued rise in crude prices, which were fuelled by worries about cold weather in the US north-east and the prospects for a production cut by Opec in March.

The day’s big loser was Elan, which plunged 70.3 per cent to $8 in heavy trading after the Irish biotech company withdrew its multiple-sclerosis drug Tysabri over safety concerns. Shares in Biogen Idec, which co-markets the drug, fell 42.6 per cent to $38.65.Outside of the pharma blowup,

Another bout of Monday merger mania grabbed the headlines and dominated trading. A long-rumoured deal in the retail sector was finally consummated – Federated Department Stores agreed to acquire its rival May Department Stores for $11bn.

Shares in Federated rose 27 cents, or 0.6 per cent to $56.45, in part because the retailer said it would increase its annual dividend to $1 a share. Shares in May eased 2.4 per cent to $34.51.

Shares in the trucking company USF soared 23.1 per cent to $47.80 after Yellow Roadway unveiled a $1.4bn acquisition. Yellow Roadway’s stock eased 5.8 per cent to $57.75.

Also, One planned marriage was called off: King Pharmaceuticals and the general drug maker Mylan Laboratories scuttled their merger over a disagreement on terms. Mylan shares rose 48 cents, or 3.9 per cent to $17.60, while shares in King fell 76 cents, or 6.8 per cent to $9.55.

Shares in the volatile satellite-radio companies surged higher after the industry leader XM Satellite unveiled a 30 per cent price increase. XM shares climbed $2.67, or 14.7 per cent to $32.96 and its rival Sirius Satellite gained 34 cents, or 8.2 per cent to $5.57.

Shares in Wal-Mart, the world’s largest retailer, climbed 58 cents, or 0.2 per cent to $51.61. It posted unexpectedly strong numbers for February, with same-store sales rising 4 per cent.

Wall Street analysts largely shrugged off the market’s modest decline, but some expressed concerns about the prospects that the economy might fuel higher inflation in light of last week’s strong non-farm payrolls data.

Stuart Schweitzer, global markets strategist at JPMorgan Fleming, said Friday’s jobs report was the highlight of the week.

“It’s a good news-bad news situation, we all like to see more people have jobs but no one likes higher costs or higher inflation,” he said.

Mr Schweitzer said he continued to view that market as range-bound in the near term because the economy could strike some investors as “too strong for its own good”. Phil Dow, the director of equity strategy at RBC Dain Rauscher, dismissed concerns about a too strong economy in the near term and said high quality companies that pay a dividend “haven't really done anything”.Before all is said and done, those stocks are going to move higher,” he said

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