The business stories that matter, by Fortune's Colin Barr
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February 1, 2008, 11:48 am

Microsoft M&A rally peters out

Microsoft’s (MSFT) big takeover bid sent shares of Yahoo (YHOO) sharply higher, and the market rallied in early action on hopes that a merger-and-acquisition wave could be ahead. But outside of Yahoo and a few other possible takeout plays, such as online business software outfit Omniture (OMTR), investors soon lost their enthusiasm for the deal. Just before midday the Dow Jones Industrial Average was up 28 points and the Nasdaq was down 2. The weak response came in spite of another round of record profits at Exxon (XOM) and a multibillion-dollar investment by Alcoa (AA) and a Chinese aluminum company in London’s Rio Tinto (RTP). So why the long face? Len Blum, a managing director at investment banking firm Westwood Capital in New York, says Friday morning’s weak jobs report adds yet another scrap to the mounting pile of evidence that the U.S. economy is headed for a painful recession. “The Fed’s doing the right thing” by cutting rates sharply, Blum says. But referring to the continuing decline in house prices that is weighing on consumer spending, he adds, “You can’t treat walking pneumonia with a Band-Aid.”

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Colin Barr covers business and finance for Fortune.com. Previously he was an editor at TheStreet.com and author of the weekly Five Dumbest Things on Wall Street column, and an editor at Dow Jones Newswires.
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