Stocks decline in session

Wall Street extended its decline Monday as concern about a possible market “correction” offset investor optimism that acquisition activity is on pace to set a record this year.

The $45-billion buyout of electric utility TXU injected confidence into the market that merger and acquisition activity could surpass last year’s record $4-trillion level. The deal with a consortium led by Kohlberg Kravis Roberts and Texas Pacific Group, would go down as the largest leveraged buyout in U.S. history.

Other deals included Station Casinos, which agreed to be bought by a private equity firm started by the company’s founding family. Temple-Inland, a conglomerate that offers products including packaging material and financial services, plans to separate itself into three stand-alone public companies.

Stocks, however, were unable to sustain gains amid speculation that the market might be in for a sharp pullback, or correction. Hanging over the market is a lack of catalysts that could propel stocks forward, especially ahead of an expected downward revision of fourth-quarter gross domestic product when results are released Wednesday.

“Despite the buyout news, we’re seeing the broader market a little concerned that we’ve had such strength without a correction,” said Peter Dunay, an investment strategist at New York-based Leeb Capital Management. “We may be in a period where the market wants to step back for a bit.”

The Dow Jones industrial average fell 15.22 points, or 0.1%, to 12,632.26. The index has had 31 record closes since the beginning of October, and has risen about 8% in that time.

Broader stock indicators also lost ground. The Standard & Poor’s 500 index was down 1.82 points, or 0.1%, at 1,449.37, and the Nasdaq composite index fell 10.58 points, or 0.4%, to 2,504.52.

Nasdaq finished last week in positive territory, while the Dow and S&P; dipped.

Treasury bond yields fell as some investors continued to sell high-risk bonds backed by sub-prime mortgages and moved into higher-quality issues.

The yield on the benchmark 10-year Treasury note dropped to 4.63% from 4.67% on Friday.

A warning from former Federal Reserve Chairman Alan Greenspan about a possibility of a recession by year’s end also helped to push some investors into Treasury issues.

The dollar was mixed against other major currencies, while gold futures rose $3.40 an ounce to $686.50.

Oil prices rose after a winter storm plowed across the U.S., spurring expectations of strong demand for heating oil. Crude oil futures gained 25 cents a barrel to $61.39 in New York trading. The rise in crude prices caused transportation stocks to lose ground. The Dow Jones transportation average, which includes trucking companies and airlines, fell 122.21, or 2.4%, to 5,036.72.

Todd Salamone, director of trading at Schaeffer’s Investment Research in Cincinnati, said investors remained nervous because the S&P; 500 hasn’t had a 2% correction in 121 sessions.

“Some selling is actually good for the market -- there’s less of a possibility for any panic selling if we do decline because they’ll already be out of the market,” he said. “And, remember, the last time we went this number of days without a 2% correction was in 1995 -- right ahead of one of the biggest bull markets in history.”

In other market highlights:

* TXU rose $7.91, or 13.2%, to $67.93 after it agreed to be bought by private equity firms for $32 billion, plus the assumption of $13 billion of debt. Directors of the electric utility voted Sunday night to recommend that shareholders approve the deal, which values its stock at a 15% premium.

Other utility issues rising on the acquisition news included Exelon, up $2.45 to $69.38, and Dominion Resources, up $1.71 to $87.39.

* Dow Chemical rose $1.54, or 3.5%, to $44.99 on speculation that it could be the target of a leveraged buyout. London’s Sunday Express newspaper said the chemical company might be given an offer of about $54 billion from buyout funds.

* Station Casinos rose $3.20, or 3.8%, to $86.50 after it agreed to go private in a $5.4-billion deal, which represents an 8% premium over its closing price Friday. The deal still allows Station to solicit acquisition proposals from third parties for 30 days.

* Temple-Inland rose $7.06, or 12.9%, to $62.01 after it agreed to spin off its real estate and financial services arms and sell its timberland business. The decision came days after activist shareholder Carl Icahn said he’d wage a proxy fight to seize control of the board.