Wall Street stocks were set for a lower start on Friday as fears of a recession and credit market jitters continued to unsettle wary investors.
Less than an hour before the opening bell, S&P 500 futures were down 10.2 points at 1,330 and were trading below a fair value of 1,337.79.
Nasdaq futures were down 11.5 points at 1,755.50, below fair value of 1,758.19. Meanwhile, futures for the Dow Jones Industrial Average gave up 83 points to 12.195.
Futures hit the skids after a Fed official said a US recession could not be ruled out this year. San Francisco Federal Reserve president Janet Yellen said she was "not confident" a recession could be avoided. Although an extended spell of slow-growth was the most likely outcome, she said there were "still reasonable odds of recession".
The major indices rallied on Thursday as traders finally called a halt to a three-day losing streak.
However, a decline of more than 4 per cent this week has left the S&P500 reeling near its January low.
"Part of making a [market] bottom is time. Even if the market doesn't make a new low it's going to go sideways for a while," Jim Moffett, lead portfolio manager at UMB Scout Fund International said.
One of the main factors driving market skittishness has been the uncertain fate of monoline insurers. Investors fear a possible downgrade of a key bond insurer could trigger big losses at US banks.
On Thursday, Moody's cut bond insurer Security Capital Assurance's triple-A rating, meaning $160bn of securities it guarantees will also face downgrades.
MBIA, a larger bond insurer, fell 8.5% in pre-market trading to $13 after it sold $1bn in shares at a 14 per cent discount to its $14.20 closing price to raise much needed capital.
The price of protecting European corporate debt against default rose to a record high on Friday amid rumours that a complex credit derivative, possibly a collateralized debt obligation, was being unwound in the market.
According to Standard & Poors the number of CDOs to have triggered "events of default" has now risen to 80 - worth around $97bn, an increase of $13bn in the past week. Rumours abound that more liquidations at firesale prices are expected.
Credit jitters pushed bond prices higher early on Friday. The yield on the two-year Treasury note retreated 6bp to 1.99 per cent while the 10-year Treasury note yield was down 5bp at 3.71 per cent. Treasuries fell sharply on Thursday after a sale of 30-year bonds met a weak reception.
In telecoms, Alcatel-Lucent was in focus after it gave a cautious outlook for 2008 and cancelled its dividend. The company posted a EU2.58bn ($3.74bn) fourth quarter net loss after taking a big impairment charge. However the shares were set to rise as the company reported stronger-than-expected quarterly sales.
The troubled retail sector was also a high priority for investors after Tiffany, the luxury jeweller, said forecast 2008 earnings well above analysts' estimates.
Consumer stocks drifted in early trade Thursday after Wal-Mart's January same-store sales disappointed analysts. However, retailers rallied during the session after JC Penney and Gap issued earnings guidance which reassured investors.
European stocks were little changed ahead of the open on Wall Street. The FTSE Eurofirst 300 index down 0.1 per cent, the FTSE 100 was flat while the Dax rose 0.2 per cent in Germany. Asian equity markets closed mainly lower, led by a 1.4 per cent fall on the Nikkei.
The dollar retreated early in New York. In overnight trade the US currency fell 0.2 per cent against the euro to $1.4516 and 0.3 per cent against the pound to $1.9483. The dollar had risen sharply against both currencies after the Bank of England cut interest rates and ECB president Jean-Claude Trichet hinted the bank's tightening bias may be at an end.
Gold traded 0.8 per cent higher at $917.20 an ounce while WTI crude oil futures climbed 0.5 per cent to $88.54.
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