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[BRIEFING.COM] The stock market took a breather Monday following Friday's rally, as a cautious tone ahead of Wednesday's FOMC meeting somewhat overshadowed renewed activity on the M&A front and another pullback in oil.

Reports that Wachovia (WB 55.43 -3.96) is buying Golden West Financial (GDW 74.90 +4.39) for $26 bln and news that Thermo Electron (TMO 38.54 -0.91) is hooking up with Fisher Scientific (FSH 75.95 +2.22) in a reverse merger valued at $10.6 bln provided some sources of support and played into our bullish outlook for the investment banks. However, the ensuing bullishness that usually accompanies resurgence in merger activity took a back seat to Fed policy jitters, as the absence of market-moving earnings and economic news left investors already looking ahead to dissecting every word and comma in the accompanying statement as to the direction of the Fed's tightening efforts. While another 1/4% hike in the fed funds rate is widely anticipated, investors will remain more focused on finding clues that signal whether or not the Fed will "pause" at its next meeting in June or keep on hiking rates.

Further underscoring a day in which stocks treaded water in relatively tight trading range from beginning to end was the lack of industry leadership that has helped everyone from large caps, as evidenced in the Dow trading near six-year highs, and small caps, reflected in the Russell 2000 at historic levels. To wit, Telecom was the best performing sector Monday, but since Telecom only accounts for 3.3% of the total weighting on the S&P 500, the sector's 0.7% gain had little impact on the overall trading. Consumer Staples turned in the next biggest gain (+0.6%) but much of that was the result of more speculation on the ethanol front renewing enthusiasm for Archer Daniels Midland (ADM 43.28 +2.58). Technology barely closed above the flat line, as an upgrade-induced 3.1% surge in Intel Corp (INTC 20.11 +0.60), a suggested holding in our Active Portfolio, and a rebound in Dell (DELL 26.43 +0.75) from 52-week lows, helped offset weakness in semiconductor, software and networking.

Utilities turned in the day's worst performance, led by an earnings disappointment from Edison (EIX 40.15 -0.94) and modest consolidation in Treasuries that lifted the yield on the 10-yr note to 5.12%. Bonds slipped amid caution ahead of the Fed's meeting and the issuance of $34 bln in new Treasuries this week led by tomorrow's 3-yr note auction and followed by Thursday's 10-yr note auction. Another rate-sensitive area losing ground but acting as a much more influential overhang was Financial. Modest profit-taking in Industrials and further consolidation in Energy, as crude oil prices closed below $70 a barrel, also stalled some of the momentum behind Friday's broad-based rally. Oil prices, which were off more than 2.0% and flirting with $68 a barrel at one point after Iranian President sent a letter to President Bush seeking ways to ease tensions, closed down just 0.6% at $69.75 a barrel.
NYSE Adv/Dec 1629/1624...Na