Stocks edge lower as Fed concerns offset M&A

Robert Gross, a trader from Barclays Capital, works on the floor of the New York Stock Exchange in New York, November 9, 2010.

NEW YORK (Reuters) - Stocks slipped on Monday as concerns the Federal Reserve may scale back its efforts to stimulate the economy muted optimism over two big takeover bids.

The S&P 500 held above its 20-day moving average, now near 1,196 and marking a potential support level, though the index closed slightly lower.

The energy and materials sectors, which are sensitive to commodity prices and weaken when the dollar rises, led the way down as the Treasury bond market selloff picked up steam in the afternoon. The S&P materials sector .GSPM lost 0.9 percent.

"There's been concern that the quantitative easing is going to be scaled back. There is certainly the skepticism and uncertainty over QE 2 out there," said John Canally, an investment strategist and economist at LPL Financial in Boston.

The Dow Jones industrial average .DJI edged up 9.39 points, or 0.08 percent, at 11,201.97. The Standard & Poor's 500 Index .SPX was off 1.46 points, or 0.12 percent, to 1,197.75. The Nasdaq Composite Index .IXIC slipped 4.39 points, or 0.17 percent, to 2,513.82.

Mergers and acquisitions kept the market afloat for most of the day after Caterpillar Inc (CAT.N) agreed to buy mining equipment maker Bucyrus International Inc BUCY.O for $7.6 billion and data storage equipment maker EMC Corp (EMC.N) inked a deal to buy smaller rival Isilon Systems Inc ISLN.O for $2.25 billion.

Bucyrus surged 29 percent to $89.80, while Caterpillar rose 1 percent to $81.82 and helped the Dow close slightly higher.

Isilon was among the most active stocks on Nasdaq, jumping 28.5 percent to $33.77, while EMC slipped 1.2 percent to $21.45.

Analysts said they expect M&A deals down the line will see buyers focusing on gaining access to international markets, a potential driver of growth for companies as the U.S. economy recovers slowly.

If the S&P 500 holds above its 20-day moving average it could find itself in a tight range as it faces strong resistance around the 1,228 level. The Bollinger bands chart indicates the near-term target at 1,230, in the area of the 61.8 percent retracement of the slide from the 2007 historic highs to the 12-year lows of March 2009.

"That 1,220, 1,230 (level) is an important level and I don't think it's going to be easy to get through. We're going to need some sort of surprise good news to get us through there on a sustained basis," said Scott Wren, senior equity strategist at Wells Fargo Advisors in St. Louis.

Among gainers in the mining sector, Terex Corp (TEX.N) climbed 2.9 percent to $25.13 and Joy Global Inc JOYG.O shot up 7.5 percent at $77.77.

In economic news, retail sales posted their largest gain in seven months in October, lifted by purchases of motor vehicles and building materials. Separately, a gauge of manufacturing in New York state fell in November to its lowest level since April 2009.

Amazon.com Inc (AMZN.O) shares fell 4.1 percent to $158.90 on concerns that the decision by a number of rivals, including Wal-Mart (WMT.N), to offer free shipping could challenge the online retailer's results.

Charts show Amazon's stock is technically weak in the short term, with the daily moving average convergence-divergence at a 'sell' since late October, except for a one-day blip last week. Momentum turned negative on Friday when it also accumulated a two-day drop of 4.4 percent.

And after Amazon's close on Friday below its 20-day moving average -- a first for the share since October 11 -- the Bollinger bands chart shows a near-term target of $158.65, more than 4 percent below Friday's close.

About 6.71 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, well below last year's estimated daily average of 9.65 billion.

Declining stocks outnumbered advancing ones on the NYSE by 1,577 to 1,386, while on the Nasdaq, advancers beat decliners by 1,420 to 1,195.

(Reporting by Leah Schnurr; Additional reporting by Rodrigo Campos and Angela Moon)