Wall St investors look to lock in profits

US stocks were set for a lacklustre start on Monday, as equity investors looked to lock in profits after the best week for equities in almost five years.

Less than an hour before the opening bell, S&P 500 futures were down 1.7 points at 1,395, fractionally below a fair value of 1396.35.

Nasdaq futures were down 2 points at 1,861.50, slightly above a fair value of 1,860.92.

Futures for the Dow Jones Industrial Average were down 18 points at 12,738.

Equities rebounded strongly last week, chalking up their best performance since March 2003, as another 50 basis point interest rate cut, a plan to rescue troubled bond insurers and Microsoft's $44.6bn bid for Yahoo helped boost beaten-down sentiment on Wall Street.

The potential tech mega-merger may come in for closer scrutiny after Google (NASDAQ:GOOG) said on Sunday the takeover could open the way for Microsoft to extend its PC monopoly to the internet.

The online search giant has problems of its own after Goldman Sachs on Monday removed Google from a conviction buy list. Google's quarterly earnings last week failed to exceed Wall Street's expectations and the shares have now fallen more than 25 per cent so far this year.

A rescue plan to prevent bond insurers losing their triple-A credit ratings is unlikely to receive help from private equity firms, the Financial Times reported on Monday, as they believe the risks are too great.

US and European banks are joining forces to help recapitalise Ambac Financial, a leading monoline insurer, in order to avoid a potentially damaging downgrade from one of the big credit agencies. Separate teams are working with other bond insurers.

Financial companies have rallied well in recent days as investors have looked to buy into weakness. Concerns about further credit losses and writedowns remain, however.

UBS told investors to sell shares in credit card issuers American Express, Capital One Financial and Discover Financial Services citing expectations of rising credit losses in the consumer finance industry. The firm cut its price target on AmEx from $67 to $45.

Wall Street analysts fear a significant weakening in the employment market could lead to rising delinquencies. Economists were shocked on Friday after the US economy lost jobs for the first time in four and a half years.

In earnings news Archer Daniels Midland (NYSE:ADM), the food producer, increased quarterly profits to $473m from $441m, narrowly missing some analysts' estimates, while sales jumped 50 per cent to $16.5bn. The shares fell 50 cents to $45 in pre-market trading.

Humana (NYSE:HUM), the health insurer, increased fourth quarter profits by 57 per cent to $243.2m , beating Wall Street estimates, while revenues rose 12 per cent to $6.34bn. The shares edged up 0.1 per cent to $81.90 in the pre-market.

Wendy's, the fastfood chain, said fourth quarter earnings rose 42 per cent, helped by improved margins but sales fell slightly and the shares slipped 3.7 per cent in the pre-market.

Earnings updates from News International and Yum Brands are due later on Monday.

European stocks were mostly higher ahead of the open on Wall Street. The FTSE Eurofirst 300 index rose 0.6 per cent, the FTSE 100 put on 0.2 per cent but the Cac-40 was trading fractionally lower in France. Asian equity markets had a strong day, led by a 3.8 per cent rally on the Hang Seng and a 2.7 per cent jump on the Nikkei.

Bond prices tracked lower paring some of last week's gains. The yield on the two-year Treasury note climbed 1.5bp to 2.08 per cent while the 10-year Treasury yield was up 4bp at 3.63.

The 153bp yield curve - the spread between short and long-dated Treasuries, just shy of its steepest since 2004, as traders continue bet on further interest rate cuts in coming months. The futures market priced in a 58 per cent chance of another 50bp cut when the Fed next meets in March, with at least one further round of easing seen likely.

The dollar was mixed against major currencies early in New York. In overnight trade the dollar gave up 1.6 per cent to $1.4825 against the euro and 0.6 per cent against the pound at $1.9768. Against the yen the US currency rose 0.4 per cent to Y106.94.

The gold spot price fell 0.7 per cent to $907 continuing last week's sell off while crude oil prices slipped below the $89 mark as wary traders positioned themselves for a potential US recession.

This week is a quieter period for economic data. December factory orders are expected to have risen 2.8 per cent when the Commerce Department report is released at 10am. The ISM services index is due on Tuesday with initial jobless claims and pending home sales on Thursday and wholesale inventories on Friday.