Wall Street stocks were set for a modest gains on Monday as a rash of potential dealmaking in the technology sector partially offset a sharp rise in credit market tension.
Less than an hour before the opening bell, S&P 500 futures were up 4 points at 1,334.30, 2.2 points above fair value. Nasdaq futures were up 5.5 points at 1,782, while futures for the Dow Jones Industrial Average were up 33 points at 12,210.
Dow Jones on Monday announced changes to its benchmark Dow Jones Industrial Average, removing Altria and Honeywell and replacing them with Bank of America and Chevron.
The changes were the first since April 2004 and are set to apply from February 19. Honeywell, an industrial conglomerate, fell 1.5 per cent to $56.99 in pre-market trading while Altria, owner of the Philip Morris tobacco company, fell 1.1 per cent to $72.30.
Yahoo's board is on Monday expected to turn down Microsoft's $31-a-share offer which could lead to a drawn out takeover battle. The software giant is now preparing to target Yahoo's shareholders directly, the FT reported.
The Times said the search company was looking to restart merger talks with AOL to fend off Microsoft's bid. Yahoo's shares rose 0.8 per cent to $29.44 in pre-market trading while Microsoft fell 0.2 per cent to $28.50 after RBC Capital Markets slashed its price target from $40 to $31.
Meanwhile, Motorola (NYSE:MOT) and Nortel Networks (NYSE:NT) are in discussions about a possible merger of their wireless-infrastructure units, The Wall Street Journal reported.
Financial stocks are likely to remain under pressure on Monday as a slew of risk indicators pointed to elevated tension in credit markets.
The iTraxx Crossover, which measures the cost of insuring a basket of mostly junk-rated credits against default, soared to a record high amid continued speculation that structured credit products were being unwound.
The S&P 500 fell 4.6 per cent last week as fears grew that corporate and commercial property defaults are set to rise. Investors were gripped by worries that the market for leveraged loans - used to finance Wall Street dealmaking - has been hit by an increase in redemptions.
Speaking after a Group of Seven meeting, Peer Steinbrück, German finance minister, warned this weekend that writedowns linked to the US subprime mortgage crisis could reach $400bn, sharply higher than the $120bn losses already booked by Wall Street banks and other institutions.
European stocks were mixed ahead of the open on Wall Street. The FTSE Eurofirst 300 index was down 0.1 per cent, the FTSE 100 slipped 0.3 per cent but the Dax climbed 0.5 per cent in Germany. Asian equity markets closed mainly lower, led by a 3.6 per cent fall on the Hang Seng.
Bond prices retreated ahead of an expected higher open for stocks. The yield on the two-year Treasury note rose 4.5bp to 1.97 per cent while the 10-year Treasury note yield added 2.5bp to 3.67 per cent.
The dollar was was broadly lower again against other major currencies early in New York. In overnight trade the dollar fell 0.1 against the euro to $1.4525 and 0.1 per cent against the pound to $1.9474. Against the yen the US currency fell 0.3 per cent to Y106.97 as investors cut back on carry trades.
Gold was trading 0.7 per cent higher at $928.60 while WTI crude oil futures put on 0.3 per cent to $92.
In earnings news, toymaker Hasbro (NYSE:HAS) on Monday said fourth quarter profit rose 24 per cent as revenues jumped 16 per cent. The stock was up 5.4 per cent in pre-market trading.
This week is a relatively quiet period for economic data updates. Retail sales and business inventories are due on Wednesday, initial jobless claims on Thursday with import and export prices set to round off the week on Friday.
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