Yahoo! waits on Microsoft's next move; Countrywide, BofA in Fed hearings; airlines keep up deal chatter

By Aaron Hochman-Zimmerman

New York, April 29 - Investors kept their gazes toward to the Federal Reserve as the Federal Open Market Committee began its two-day meeting in Washington, D.C., while in Los Angeles the Fed held hearings on the lending practices of Countrywide Financial Corp. and Bank of America Corp.

Meanwhile, Microsoft Corp. shares were lower as it stood motionless in front of Yahoo! Inc.'s stonewall after threatening to begin a proxy war last Saturday.

Airline musical chairs played on as UAL Corp. turned sharply toward talks with U.S. Airways Group Inc. and away from the short-lived talks with Continental Airlines Inc.

Airline stocks, including Delta Air Lines Inc. and Northwest Airlines Corp. improved with descending oil prices.

Shares of Take-Two Interactive Software Inc. were slightly better as gamers were relieved to finally own the long-awaited Grand Theft Auto 4.

Also in technology, Oracle Corp. shares were up as it closed its acquisition of BEA Systems Inc.

The Dow Jones Industrial Average slid by 39.81, or 0.31%, to end at 12,831.94, while the Nasdaq Composite Index added 1.70, or 0.07%, to finish at 2,426.10.

The S&P 500 fell 5.43, or 0.39%, to close at 1,390.94.

Yahoo! waits for start gun

Shares of Yahoo! (Nasdaq: YHOO) tacked on $0.93, or 3.52%, to $27.36 as it and Microsoft (Nasdaq: MSFT) continued to circle, but neither made a move.

Microsoft shares dropped $0.35, or 1.21%, to end at $28.64.

Microsoft has left many roads unblocked in its dealings with Yahoo!, including the one leading away from a deal altogether, "but the ball is in their court," a market source said about Microsoft.

Still, many analysts continue to believe a combination in the near-term is still the most probable outcome, but if goes through with the threatened proxy fight, it will likely be a long and costly process for Microsoft.

"He's in a very unenviable position," the market source said, about Microsoft's chief executive officer Steven Ballmer.

"He keeps saying he's not going to raise his offer," the source said, but "Yahoo! called their bluff and, so far, it looks like they were bluffing."

If he keeps to the schedule he has set for himself, "Ballmer is going to come out and say something in the middle of the week," the source said.

Countrywide faces the Fed

Shares of Countrywide (NYSE: CFC) added $0.02, or 0.34%, to close at $5.85 as the company posted an $893 million loss during the first quarter.

Meanwhile on Monday, Rep. Maxine Waters (D., Calif.) pressed the Federal Reserve to hold the lender and its $4.1 billion merger partner, Bank of America (NYSE: BAC) highly accountable for their lending practices.

"The Federal Reserve, then, is to insist upon comprehensive, audited data on both Countrywide's and Bank of America's loss mitigation activities to date," she said in a prepared statement.

"This minimum standard is something that even Secretary Paulson - no fan of compelling industry behavior so far during this crisis - apparently took the major servicers to task for failing to meet in a closed-door meeting last week," she added.

"That deal is going through no matter what," a market source said, calling much of the debate in government: "Just political bull."

"Countrywide would fail without it and this the Feds' way of dealing with this one," he said.

"I am sure Bank of America will get accommodations by the Fed in some manner," he said.

Another analyst said there were rumors that there is a "high probability that Bank of America will have to cut their offer now," he said.

"People are balking at the way they run things," he said about the Federal Reserve hearings in Los Angeles, "but it's mostly for [chief executive officer Angelo] Mozilo's pay."

Shares of Bank of America lost $0.32, or 0.84%, to finish the day at $37.86.

Buy the friendly skies?

Shares of United (NYSE: UAUA) were better by $0.12, or 0.81%, to $14.93 as merger talks began with U.S. Airways (Nasdaq: LCC).

The new negotiations came quickly, without much grieving over the quick breakdown of a possible union with Continental (NYSE: CAL).

Shares of U.S. Airways improved $0.34, or 3.94%, to close the session at $8.96.

"The airlines are just moving on oil," a market source said.

Light sweet crude was seen trading below $115 per barrel during the day.

"I'm not sure how much industry consolidation we'll see beyond Delta-Northwest," he added.

Continental shares took on $0.60, or 3.54%, to close at $17.56.

Delta (NYSE: DAL) shares jumped $1.05, or 14.60%, to $8.24, while Northwest (NYSE: NWA) shares were up $1.74, or 22.83%, to end at $9.36.

Take-Two rides Grand Theft Auto

Shares of Take-Two (Nasdaq: TTWO) were better by $0.16, or 0.60%, to reach $26.63 on the release date of its well-reviewed Grand Theft Auto 4.

The price now trumps Electronic Arts' $25.74 per share bid.

Electronic Arts stock (Nasdaq: ERTS) traded lower by $0.15, or 0.29%, to end at $51.68.

"Electronic Arts said it's not going to change the way they do things," a market source said.

However, they "will have to increase their bid," the source said. "The consensus is they have to increase their bid."

Take-Two has said it would not entertain offers until after the release of Grand Theft Auto 4.

BEA, Oracle compatible, says E.U.

With the anti-trust blessing of the European Commission, Oracle (Nasdaq: ORCL) was given the all-clear to pull the trigger to close the deal to buy BEA Systems (Nasdaq: BEAS) for $8.5 billion.

Oracle shares were up by $0.25, or 1.16%, to finish the session at $21.76.

First Charter to close

Shares of First Charter Corp. (Nasdaq: FCTR) added $0.44, or 1.48%, to end at $30.11 as a letter to shareholders suggested that the $1.1 billion deal with Fifth Third Bancorp (Nasdaq: FITB) will close on June 6, according to a market source.

Shares of Fifth Third slid $0.29, or 1.32%, to finish the session at $21.72.

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