Stocks slip on oil, drugs; Apple, Amex drop late

NEW YORK (Reuters) - Stocks slipped on Monday, as oil turned higher after last week's sharp drop and Merck and Schering-Plough hurt the pharmaceuticals sector.

But dismal results after the bell from a raft of companies, including American Express (AXP.N), Apple (AAPL.O) and Texas Instruments (TXN.N) set an uglier tone for Tuesday.

Merck's (MRK.N) and Schering-Plough's SGP.N shares fell further in extended trade after they reported results. During the regular session, their shares had dropped after their lucrative shared cholesterol-fighting drug failed a clinical trial.

The price of oil dampened the mood as it rose more than $2 to end above $131 a barrel, adding to concerns about the impact of higher fuel costs on consumer spending. Oil's rise came on the heels of its biggest weekly decline ever. The S&P retail index fell 1.7 percent.

Bank stocks added to last week's gains during Monday's session and kept the broader market's losses in check, after Bank of America joined its rivals Wells Fargo (WFC.N), JPMorgan Chase (JPM.N) and Citigroup (C.N) in reporting unexpectedly strong results.

"The Merck news is specific to that sector -- you also have oil gaining again, which is hurting retailers and the broader market," said Robert Francello, head of equity trading for Apex Capital hedge fund in San Francisco.

The Dow Jones industrial average fell 29.23 points, or 0.25 percent, to 11,467.34. The Standard & Poor's 500 Index dipped 0.68 of a point, or 0.05 percent, to 1,260. The Nasdaq Composite Index slipped 3.25 points, or 0.14 percent, to 2,279.53.

BAD NEWS AFTER THE BELL

But financials looked set to start Tuesday in the red. Shares of financial companies ranging from Capital One (COF.N) to Citigroup (C.N) slid after credit card company and Dow component American Express reported a profit that missed Wall Street's estimates. American Express shares fell 7 percent in after-hours trade.

Technology companies, which were already weak in the regular session, took another leg down in extended trade after iPod maker Apple, flash memory card supplier SanDisk and chip maker Texas Instruments (TXN.N) posted results that disappointed investors.

That followed weaker-than-expected earnings from Google (GOOG.O) and Microsoft (MSFT.O) last week.

YAHOO SLIDES, BANK OF AMERICA GAINS

During the regular session, shares of Yahoo Inc (YHOO.O) fell 3.5 percent to $21.67 on Nasdaq. The Internet company agreed to appoint investor Carl Icahn and two of his nominees to its board. The move settles a proxy battle and makes prospects for an immediate transaction with Microsoft Corp (MSFT.O) less likely. Microsoft shares slipped 0.9 percent to $25.64.

Bank of America shares rose 3.9 percent to $28.56 on the New York Stock Exchange and followed other positive earnings surprises by banks last week. ID:nN21389811.

Shares of American International Group (AIG.N) jumped 5.8 percent to $26.53 after Bank of America raised its rating on the insurer to "buy" from "neutral," saying the risk-to-reward ratio has become "very attractive."

BITTER PILL FOR MERCK

In the drug sector, Merck's stock slid 6.2 percent to $35.33 and Schering-Plough sank 11.6 percent to $18.95.

The cholesterol fighter Vytorin sold by Merck and Schering-Plough failed to meet the main goal of improving outcomes in a closely watched heart study. Slightly higher incidents of cancer deaths were also seen in those taking the drug -- 39 versus 23 on placebo -- although the lead researcher said those could have occurred as a result of chance.

In other drug company news, Swiss pharmaceutical company Roche offered to buy all the outstanding shares of U.S. partner Genentech Inc DNA.N, the world's second-largest biotechnology company, that it doesn't already own for nearly $44 billion. Genentech shares jumped 14.7 percent to $93.88 on the NYSE. ID:nL21363720

Trading was thin on the New York Stock Exchange, with about 1.20 billion shares changing hands, below last year's estimated daily average of roughly 1.9 billion, while on Nasdaq, about 1.89 billion shares traded, also below last year's daily average of 2.17 billion.

In spite of the market's modest decline on Monday, its breadth was decidedly positive.

Advancing stocks outnumbered declining ones by 2 to 1 on the NYSE and by 4 to 3 on the Nasdaq.

(Reporting by Kristina Cooke; Editing by Jan Paschal)