Wall Street cuts gains by the close as optimism about WaMu, mergers, gives way to concern about earnings

Stocks ended mixed Monday, as investors welcomed news that Washington Mutual could see a $5 billion investment, but showed caution ahead of the quarterly earnings period, due to get underway after the close.

The Dow Jones industrial average and the broader Standard & Poor's 500 index both gained a few points. The Nasdaq composite lost 0.3%.

The major gauges struggled higher through the morning as investors welcomed corporate news, including the latest for the possible Microsoft-Yahoo combination and $5 billion investment for mortgage lender Washington Mutual.

But a spike in oil, gold and gas prices and some selling in the technology sector dragged on stocks in the afternoon, with the Nasdaq ending the session lower.

After the close, Dow component and aluminum producer Alcoa reported quarterly earnings that fell from a year ago and missed estimates on sales that fell from a year ago and beat estimates. As is traditional, Alcoa's earnings mark the unofficial start of the quarterly reporting period.

Results for the overall S&P 500 are expected to decline versus a year ago, due largely to a big drop in financial sector results amid the credit and housing market crises.

No big market-moving earnings are due Tuesday, with the focus instead on the morning's economic news.

The February pending home sales index is due in the morning and the minutes from the last Federal Reserve policy meeting are due in the afternoon.

Investors will also be sorting through comments from a pair of Fed officials expected late Monday night. Federal Reserve Vice Chairman Donald Kohn and San Francisco Fed President Janet Yellen are both expected to speak tonight in San Francisco.

Washington Mutual rumors. Earlier, financial stocks had rallied as investors continued to bet that the worst is over with for the market.

The potential ($5 billion) Washington Mutual investment was important for investor sentiment amid ongoing questions about whether the credit crisis has seen a turning point, said Joseph Saluzzi, co-head of equity trading at Themis Trading.

Private equity is generally seen as the smart money, and its been sitting on the sidelines lately, he said. So if this deal turns out to be true and the smart money is seeing value in companies like Washington Mutual, that's a good sign.

He said the market was also benefiting from an improvement in sentiment seen last week, when investors welcomed news that UBS and Lehman Brothers are raising cash - and took in stride a dismal March jobs report.

Washington Mutual is in talks to receive a $5 billion investment from private equity firm TPG and other investors, The Wall Street Journal reported. Shares jumped 29%.

Microsoft said over the weekend that Yahoo has three weeks to agree to a takeover or face a proxy fight for control of the company. On Monday, Yahoo said it isn't opposed to a deal, but wants a better offer than the current $41 billion.

Swiss drugmaker Novartis is buying 25% of Alcon with an option to ultimately buy more than 75% of the eye-care company in a deal that could be worth as much as $38 billion.

Market breadth was mixed. On the New York Stock Exchange, winners topped losers by 9 to 7 on volume of 1.27 billion shares. On the Nasdaq, decliners narrowly edged advancers on volume of 1.78 billion shares.

Commodity prices. U.S. light crude oil for May delivery rose $2.86 to settle at $109.09 a barrel on the New York Mercantile Exchange.

COMEX gold for June delivery rose $11.80 to $925 an ounce.

Other markets. The dollar rose versus the euro and the yen.

Treasury prices slumped, raising the yield on the benchmark 10-year note to 3.56% from 3.46% late Thursday. Bond prices and yields move in opposite directions.