US STOCKS-Indexes slip again as subprime worries weigh

By Caroline Valetkevitch

NEW YORK, June 26 (Reuters) - U.S. stocks closed down for a third session on Tuesday as higher bond yields raised concerns about borrowing costs and more fallout from the subprime mortgage market kept investors on edge.

But a drop in oil prices eased worries about inflation and takeovers in health care and chemicals increased optimism about share valuations, limiting the market's decline.

During the session, stocks remained skittish and swung back and forth from positive to negative.

"Everyone's trying to pick the bottom with housing and (they are) going to continue to speculate on that," said John O'Brien, senior vice president at MKM Partners LLC in Cleveland.

Bill Gross, manager of the world's largest bond fund, said the subprime mortgage crisis gripping U.S. financial markets was not an isolated event and will eventually take a toll on the economy. For details, see [ID:nN26351264]

Rising bond yields and fears the subprime mortgage meltdown could spread hurt some financial stocks, including shares of Citigroup Inc. (C.N: Quote, Profile, Research, Stock Buzz), down 1 percent at $51.15. The Dow Jones U.S. Home Construction Index .DJUSHB fell 2.4 percent.

The Dow Jones industrial average .DJI was down 14.39 points, or 0.11 percent, to end at 13,337.66. The Standard & Poor's 500 Index .SPX was down 4.85 points, or 0.32 percent, to finish at 1,492.89. The Nasdaq Composite Index .IXIC was down 2.92 points, or 0.11 percent, at 2,574.16.

The benchmark 10-year U.S. Treasury note <US10YT=RR> was down 2/32, while the yield was up at 5.10 percent.