US STOCKS-Market wavers as drugs weigh, Fed looms

(Reuters) - U.S. stocks ended little changed on Tuesday as setbacks for two drugs weighed down the pharmaceutical sector, offsetting the relief from a retreat in record high crude oil prices.

Trading volume was scant as investors turned cautious with the Federal Reserve's two-day meeting under way. Policy makers are expected to trim interest rates and signal an end to a series of deep cuts started in September.

The prospect of steady rates helped support the dollar and contributed to a 2.5 percent drop in oil prices from a record high. Crude's decline sparked a rally in airlines, but dragged on energy-related shares.

Merck & Co Inc (MRK.N: Quote, Profile, Research) shares fell more than 10 percent a day after the company said U.S. regulators rejected a new cholesterol drug, prompting brokerages to cut price targets on the stock.

Further dragging on the drug sector, biotechnology companies Genentech Inc (DNA.N: Quote, Profile, Research) and Biogen Idec Inc (BIIB.O: Quote, Profile, Research) said a study of one of its cancer treatments failed to show the drug was also effective for treating lupus. [ID:nWNAS0367]

"Pharmaceuticals used to be the traditional recession play, but it seems they have so many negative stories, they can't get out of their own way," said Mark Schlarbaum, head trader at Global Capital Management in Conshohocken, Pennsylvania.

If the drug companies could overcome that trend, Schlarbaum said they would attract some interest because "they're all cheap. It's hard to say where is the relatively safe trade in this environment."
The Dow Jones industrial average .DJI was down 39.81 points, or 0.31 percent, at 12,831.94. The Standard & Poor's 500 Index .SPX was down 5.43 points, or 0.39 percent, at 1,390.94. The Nasdaq Composite Index .IXIC was up 1.70 points, or 0.07 percent, at 2,426.10.

About 1.23 billion shares changed hands on the NYSE, well below last year's estimated daily average of roughly 1.90 billion, while on Nasdaq, about 1.75 billion shares traded, below last year's daily average of 2.17 billion.

Merck shares slid 10.4 percent to $37.14 on the New York Stock Exchange, while Genentech (DNA.N: Quote, Profile, Research) dropped 7.2 percent to $67.93. On the Nasdaq, Biogen Idec shares declined 5.2 percent to $61.33.

The American Stock Exchange pharmaceutical index .DRG was down 1 percent.

June crude CLM8 dropped $3.12 to settle at $115.63 a barrel -- sharply below Monday's record near $120 a barrel.

Shares of Northwest Airlines (NWA.N: Quote, Profile, Research) surged 22.8 percent to $9.36 and Delta Air Lines jumped 14.6 percent to $8.24. High fuel costs have pummeled airline shares and have even grounded some carriers.

Shares of Schlumberger Ltd (SLB.N: Quote, Profile, Research), an oilfield services firm, slid 3 percent to $99.26. Oil and gas producer Apache Corp (APA.N: Quote, Profile, Research) dropped 3.8 percent to $132.68 on the NYSE.

It wasn't all gloom in the oil patch. Goldman Sachs upgraded the integrated oil sector to "attractive" from "neutral," saying risk/reward was most favorable for the "super majors" such as ConocoPhillips (COP.N: Quote, Profile, Research) and Chevron Corp (CVX.N: Quote, Profile, Research).

Chevron shares rose 2.4 percent to $94.74, supporting both the Dow and the S&P. ConocoPhillips stock gained 1.2 percent to $85.45.
The latest economic data increased investors' fears of recession.

Consumer confidence hit a five-year low in April as Americans faced the worst jobs outlook since late 2004, with expectations that inflation would accelerate to a pace last seen in the early 1980s, according to the Conference Board, a private research group. That outlook worries Wall Street because consumer spending accounts for two-thirds of U.S. economic activity.

Adding to the worry list: U.S. home foreclosure filings surged in the first quarter of the year, real estate data firm RealtyTrac said. And in a separate report, the Standard & Poor's/Case Shiller home price index showed prices of existing U.S. single family homes fell further in February.