Shock Treatment

Energy suppliers, utilities and steel producers stood out in a dreary market as Iran's nuclear ambitions and Nigeria's anarchy pushed up crude prices nearly 4% to more than $66 a barrel. Airlines facing a renewed fuel crunch experienced heavy turbulence. They were joined in the minus column by techs suddenly fallen out of favor with the analysts, as well as financials depressed about the flat yield curve.

Health-care and telecom names lost ground as industrial production sped up 0.6% in December. The capacity utilization rate for the nation's industry reached a five-year high at 80.7%, a level at which higher prices have historically begun taking hold. That left open at least the possibility that the Federal Reserve would raise interest rates more than once or twice this year.

The Dow depreciated 63 points to 10896, and would have done worse without the emirate of Exxon Mobil (XOM). The Nasdaq retrenched 14 to 2303. The S&P 500 rewound 5 to 1283.

Guidant (GDT) shares leapt after underdog suitor Boston Scientific opted for shock therapy in its bidding war for the rival medical-device maker, offering $80 a share until the end of the business day. On Friday, Guidant's board endorsed the $71-a-share bid by health-care giant Johnson & Johnson (JNJ) over Boston Scientific's prior $73-a-share offer, reportedly swayed by antitrust considerations.

J&J's first offer for the company last year was worth $76 a share, but that was reduced after Guidant had to recall defective defibrillators. The strong-arming by J&J now looks like an expensive mistake, since it let Boston Scientific into the game. The $27 billion bid weighed on Boston Scientific's shares.

U.S. Steel (X) also seemed a potential takeover candidate to some, given the red-hot bidding war between German and French producers for the Canadian steel maker Dofasco.

BioCryst Pharmaceuticals (BCRX) shares developed a welcome fever after the Food and Drug Administration fast-tracked its flu remedy.

Intel (INTC) ailed ahead of quarterly results due in the evening, though not as badly as rival AMD (AMD) after a downgrade to Sell at Merrill Lynch. Yahoo (YHOO), which is also set to report this evening, was bearing up better. The wait for results from IBM (IBM) frayed the nerves of shareholders at Hewlett Packard (HPQ).

IBM is coming off a cost-cutting spree that should boost profits despite a decline in sales driven by a slowdown at its services unit. The tech giant recently overhauled its pension plan with the goal of gradually eliminating defined benefits. This morning, IBM announced a $1.1 billion outsourcing deal with Gap (GPS). Meanwhile, Indian IT specialist Satyam Computer Services (SAY) denied a Financial Times report that it has discussed the sale of an investment stake to Big Blue. Disclosure is a touchy subject for IBM these days, now that the Securities and Exchange Commission has stepped up its investigation of events surrounding last year's big earnings disappointment.

Elsewhere, Merrill Lynch (MER) slipped after speculation by CNBC that the Wall Street giant may be shopping for a regional bank. Perhaps Merrill should wait a little for a better deal. Fifth Third Bancorp's (FITB) net income nearly doubled but still fell shy of estimates, hurt by the "disappointing deposit growth in the first half of the year combined with significant flattening of the yield curve," according to the CEO.

Wells Fargo's (WFC) earnings haul came up a penny shy of the consensus forecast, hurt by debtors' rush to file for bankruptcy protection ahead of the tougher law that went on the books in October. Copper and gold producer Freeport-McMoRan (FCX) had better luck, as spikes in the prices of its commodities helped profits more than double in a year's time, easily outstripping estimates.

The pickings were slim overseas, where Japanese stocks slid nearly 3% after authorities investigating securities violations raided the offices of an Internet company. French and German shares ducked 1%. Gold held near a 25-year peak, while the dollar gained some ground on the euro. The 10-year Treasury yield slipped to 4.34%, a single basis point above the yield on the two-year T-note.