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U.S. stocks seen down at open on rate-rise fears
(Recasts, updates throughout)
By Chelsea Emery
NEW YORK, March 20 (Reuters) - Stocks look set to open lower on Wednesday as investors pare holdings on fears interest rates may rise later in the year, given the Federal Reserve's pronouncement on Tuesday the U.S. economy is growing at a significant pace.
The Fed also dropped its long-held recession warning, signaling to Wall Street economists that the Fed will raise rates to hinder possible inflation. Investment bank Goldman Sachs Group (GS) was among those forecasting such a rise.
"Goldman said the Fed could raise rates by as much as 75 (basis points), when people were looking for 25 or 50," said Todd Leone, head of listed trading for SG Cowen Securities Inc. He also said violence in the Middle East and recent gains in blue-chip stocks are causing some traders to pare holdings.
Stock futures pointed to a lower stock market open. June futures for the S&P 500 lost 5.90 points to 1,168, while futures for the Nasdaq 100 index dropped 18 points to 1,492.
Chipmaker Intel Corp. (INTC) was among the most-active stocks in pre-market trading and shares slipped to $30 from their close of $31.72. Investment bank Salomon Smith Barney cut its earnings-per-share forecast on the firm as revenues slide amid a sluggish economy.
The Fed on Tuesday said risks to the economy now are evenly balanced between weakness and strength.
Goldman Sachs then told clients it believed the Federal Open Market Committee, the policy-making arm of the Fed, would raise rates. It had previously held the view that the Fed would keep its key federal funds rate steady at 1.75 percent, a 40-year low for the remainder of the year.
"People see interest rates rising and that's bad for the stock market," said John O'Donoghue, co-head of listed stock trading for Credit Suisse First Boston. Higher rates are seen as a negative for stocks because they can crimp corporate borrowing and business development.
Hewlett-Packard Co. (HWP) shares may be active after the firm said on Tuesday that preliminary estimates showed shareholders had approved its purchase of Compaq Computer Corp. (CPQ), a result unconfirmed by voting offhicials.
HP said its view is based on a preliminary estimate by its proxy solicitor. Voting officials are expected to take days or weeks to tally the ballots on the $21 billion merger that has been the subject of intense debate. HP shareholders met on Tuesday morning. HP shares closed at $18.80, while Compaq shares closed at $11.14.
It is a busy period for financial firms to report quarterly results.
Lehman Brothers Holdings Inc. (LEH), for one, posted a drop in quarterly earnings amid an unabated decline in stock underwriting and merger advisory operations.
Bear Stearns Cos. Inc. (BSC), a leading Wall Street firm, said its quarterly profit rose, helped by strong results in its bonds businesses.
Red Hat Inc. (RHAT) posted a fourth-quarter net loss. After excluding charges, the Linux operating system provider turned a slight profit. Profit results met Wall Street expectations, but the company reported lower-than-anticipated sales. Red Hat shares closed trading at $6.80.
Mercury Computer Systems Inc. (MRCY), a provider of digital signal and image processing computer systems, on Tuesday cut its profit and sales guidance, citing delays in defense industry shipments. Shares closed at $35.03.
Jabil Circuit Inc. (JBL) reported a 90 percent drop in net profit for its second quarter, coupled with lower revenues, but said the quarter represented the low point of the year-long downturn for the battered contract manufacturing sector.
Jabil said it sees base operating margins improving by one full percentage point in the current quarter, an important gain in an industry where margins are often thin and high volume is needed to generate earnings.
The company's shares closed trading at $20.76 on Nasdaq.
In the latest technical indications, resistance -- the point where sellers are likely to emerge -- is at 10,685 for the Dow, 1,900 for the Nasdaq and 1,175 for the S&P, according to research firm Schaeffersresearch.com.
Support -- where buyers are expected to swoop in-- is at 10,475 for the Dow, 1,850 for the Nasdaq and 1,150 for the S&P. The levels are key elements of technical analysis, which studies prices, volume and charts.
In overseas trading, financial and technology stocks pressured European markets after the U.S. Federal Reserve signaled an end to its interest-rate-cutting spree.
The FTSE Eurotop 300 index (1883608) of pan-European blue chips was down 0.78 percent, though still near the top end of its four-month trading range after matching August 2001 levels earlier in the week.
The narrower Euro Stoxx 50 index (1837412) shed 0.95 percent.
Tokyo stocks closed sharply lower on Wednesday, with investors rushing to lock in profits ahead of a market holiday and after the previous day's rally had sent the Nikkei average close to the psychological barrier of 12,000.
Thursday is Vernal Equinox Day, a national holiday.
The benchmark Nikkei (65599W10) finished down 2.26 percent or 266.04 points at 11,526.78, having erased gains in early morning brought about by growing signs of a U.S. economic recovery. The broader, capital-weighted TOPIX index <.TOPX> lost 14.94 points or 1.34 percent to 1,097.85.
U.S. stocks rose on Tuesday on upbeat earnings news, but finished well off session highs after the Federal Reserve abandoned a 15-month warning about economic weakness in a move that could herald rate hikes.
The Dow Jones industrial average (26099400) rose 57.50 points, or 0.54 percent, to 10,635.25. The broader Standard & Poor's 500 Index (SPX) added 4.74 points, or 0.41 percent, to stand at 1,170.29. The technology-laced Nasdaq Composite Index (COMP) was up 3.81 points, or 0.2 percent, at 1,880.87. All three finished well below session peaks.
