Wall Street set to extend rebound

US stocks were expected to rise for the third consecutive session on Friday, repairing more of the damage inflicted in January.

A bullish outlook from Microsoft and other upbeat earnings from Caterpillar (NYSE:CAT) and Honeywell (NYSE:HON) helped sentiment.

Investors were also digesting a proposed stimulus plan from Washington and expecting more rate cuts next week when the Federal Reserve meets.

Less than an hour before the opening bell, S&P 500 futures were up 11.6 points at 1,363.80. The contract has traded between a high of 1,366.80 (up 1.1 per cent) and a low of 1,353.60 (up 0.1 per cent om the day).

The S&P 500 index closed up 1 per cent at 1,352.07 on Thursday, down 7.9 per cent in 2008.

Nasdaq futures were up 26 points at 1,863 in the pre-market on Friday.

The Nasdaq 100 rose 2.1 per cent on Thursday, clipping its loss this month to 11 per cent. The Composite rose 1.9 per cent to 2,360.92.

The mood in technology was boosted late on Thursday, when Microsoft beat fiscal second quarter earnings estimates and raised guidance. In pre-market trade, the stock was up 5.1 per cent after a rise of 4.1 per cent to $33.25 in regular trade on Thursday.

Futures for the Dow Jones Industrial Average were up 65 points at 12,430. The Dow gained 0.5 per cent to close at 12,378.61 on Thursday, paring its loss since the start of the year to a fall of 6.7 per cent.

In earnings news, Caterpillar said fourth-quarter net income rose 11 per cent, buoyed by international growth. However, the heavy equipment maker said it expects "recessionary conditions" in parts of the US will persist. The stock was up 2.9 per cent as Caterpillar reiterated its 2008 outlook.

Meanwhile, Honeywell reported 18 per cent growth quarterly net income, boosted by its aerospace division. The industrial blue chip, however warned that the global economy would soften in 2008.

As stocks have extended their recovery this week, the mood in government bonds has also sharply reversed.

The yield on the two-year note was trading at 2.32 per cent early on Friday, up from 1.84 per cent on Wednesday.

"The recent rise in yields and flattening of the curve has merely partially undone the panic price action early in the week and does not change our fundamental view of the situation that economic slowing and mounting financial market losses will allow yields to test lower and the curve steeper," said TJ Marta, fixed income strategist at RBC Capital Markets.

Interest rate futures priced in a Federal funds rate of 3.12 per cent by the end of the month, after being below 2.90 per cent earlier this week.

The dollar was firmer against major currencies early in New York, up 0.5 per cent at Y107.68 versus the Japanese yen and higher by 0.4 per cent at $1.47 against the euro.

In commodities, gold jumped on Friday to a new all-time high above $920 a troy ounce as mining companies in South Africa, the world's second largest producer, halted their operations because acute power shortages.

Wall Street's bets of further US interest rates cut, the weakness of the US dollar and rising oil prices above $90 a barrel also are contributing to the precious metal rally, traders in London said.

Spot bullion in London rose to a record of $921.30 an ounce, well above the peak of $914 an ounce set earlier this month.

US crude oil was trading up 87 cents at $90.28 a barrel.

Over in Europe, stocks were firm ahead of the open on Wall Street. The FTSE Eurofirst 300 index was 1.6 per cent higher. In London the FTSE 100 was trading up 1.1 per cent, the Cac-40 was also higher by 1.1 per cent, while in Germany the Dax was up 2.1 per cent.

In overnight trading, Asian equity markets closed sharply higher, led by a 6.7 per cent rally in Hong Kong. Australia's bourse rallied 5 per cent and Japan's Nikkei 225 index jumped 4.1 per cent.