US STOCKS-Wall St falls on Countrywide worry, oil

NEW YORK, May 5 (Reuters) - U.S. stocks fell on Monday after crude oil set another record high and concern grew that Bank of America may not complete a proposed buyout of ailing lender Countrywide Financial Corp .

The market began lower with news over the weekend that Microsoft Corp had abandoned its offer to buy Yahoo Inc for nearly $50 billion.

Banking stocks dragged on the market after a brokerage said Bank of America was likely to renegotiate its deal with mortgage company Countrywide or might even walk away from it. For details, see [ID:nBNG173851].

A collapse of the Countrywide deal "would ignite fresh fears that the credit crisis continues to deepen. A lot of people are saying we're in the end, but that's coming from people who would benefit the most from it," said Kevin Kruszenski, head of listed trading at KeyBanc Capital Markets in Cleveland. "The stock market is going to sell first and ask questions later."

The Dow Jones industrial average was down 80.36 points, or 0.62 percent, at 12,977.84. The Standard & Poor's 500 Index was down 5.31 points, or 0.38 percent, at 1,408.59. The Nasdaq Composite Index was down 6.69 points, or 0.27 percent, at 2,470.30.

Countrywide shares dropped 12.9 percent to $5.20 on the NYSE. Bank of America stock fell 1.3 percent to $39.63. Rival Citigroup Inc was down 1.9 percent to $38.85.

Microsoft initially offered $31 per share for Yahoo, then $33, but Microsoft withdrew from the talks when Yahoo Chief Executive Jerry Yang dug in for a price of $37 a share.

Yahoo shares sank 14.2 percent to $24.59. Microsoft shares rose 1.6 percent to $29.70 on Monday.

Shares of Google Inc , a competitor of both Yahoo and Microsoft, rose on expectations the company could benefit from the failure of the Microsoft-Yahoo talks. Yahoo was likely to push for an advertising partnership with the Web search company, sources familiar with the matter said. Google rose 2 percent to $593.20.

Oil rose sharply after Iran ruled out suggestions for halting developing of its nuclear capabilities in exchange for incentives. Energy shares gained as oil hit $120.21 a barrel before paring back to $119.60 a barrel.

Oil field services company Schlumberger Ltd shares were up 1.6 percent to $101.21 and Occidental Petroleum shares rose 3 percent to $86.17.

Shares of energy users declined. The American Stock Exchange airline index fell 3 percent. Major air carriers Northwest , Continental and UAL Corp were all down at least 6 percent.

The market briefly trimmed losses when data showed unexpected growth in the vast U.S. services sector last month. (Editing by Kenneth Barry)

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