Sun A Takeover Candidate?

Sun Microsystems gapped higher Monday on a renewed alliance with Oracle and takeover speculation, but then followed the rest of the market south to close at the lows of the day.

Sun has surged 30% in the last two weeks on takeover speculation. IBM and Cisco have been rumored to be possible suitors, as has Silver Lake Partners, which former Sun president Ed Zander joined last week.

The New York Times, however, reported that Sun is determined to go it alone, and at a market cap of $13 billion, the company is by some measures already fully valued, making a buyout difficult.

The broader market was battered by comments by U.S. Treasury Secretary John Snow suggesting an end to the strong dollar policy. A Supreme Court ruling upholding Maine’s drug price controls sank pharmaceutical stocks.

The Nasdaq plunged 45 to 1492, the S&P 500 fell 23 to 920, and the Dow dropped 185 to 8493. Volume declined to 1.34 billion shares on the NYSE, and 1.68 billion on the Nasdaq. Decliners led 23-9 on the NYSE, and 22-9 on the Nasdaq. Downside volume was 89% on the NYSE, and 85% on the Nasdaq. New highs-new lows were 195-8 on the NYSE, and 118-12 on the Nasdaq.

After the close, Agilent matched estimates and reaffirmed guidance.

During the day, HP fell 6% ahead of earnings tomorrow night.

SCO Group rocketed 43% on a deal with Microsoft . Microsoft, off 3%, was hit by virus concerns.

Qualcomm slipped fractionally after reaffirming estimates.

Stocks that led the recent rally, like Yahoo , were hit hard. Yahoo fell 6.5% after launching an ad campaign to tout its redesigned search function.

Motorola lost 4% on a fabric switch acquisition.

IBM fell 3% on competition from Unisys .

And the company formerly known as Worldcom prepared to pay a record SEC fine.

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