Two big economic reports are doing their worst to set the tone for stocks today.

The market: Join the discussion on

TSC

Message Boards. The

Labor Department

said that the

Employment Cost Index

grew 1.1% in the fourth quarter, higher than the 0.9% expected by economists in the

Reuters

poll and up from the third quarter's 0.8% gain.

Meanwhile, fourth-quarter

gross domestic product

grew 5.8%. That's higher than both the expected 5.3% and the third quarter's 5.7% increase. More important, that indicates a smoking clip that remains well above even the more optimistic estimates of the economy's speed limit, which, because of recent productivity gains, economists now reckon could be around 3% to 3.5% growth.

Stock futures, up as much as 7 points earlier in the morning, have turned tail. At 9:05 a.m., the

S&P 500

futures were down 12.1 to 1397. That's about 10 points below fair value and indicates some heavy selling in store for the early part of today's session.

The bonds have also sold off, with the 10-year note off 20 ticks to 94 16/32. That puts the 10-year's yield at 6.792%, still well above that of the 30-year Treasury, which was down a 26/32 to 94 even and yielding 6.588%.

"The ECI hurt," said Charles Farra, bond trader at

Goldenberg Hehmeyer

in Chicago. "A lot of people were expecting GDP to be firm, but the ECI definitely did some damage."

Farra, who's spent his fair share of time trading stock futures, noted the importance of the 1387 support level on the March S&P 500 futures contract. "That's a pretty key number," he said. "If we spend the majority of the day trading below 1400, there's a good chance they could try to go down and crack this thing."

"But to be honest," Farra continued, "given that number, the S&Ps and Treasuries aren't down that much."

The gap between GDP growth and that speed limit is the fundamental demand problem facing the

Federal Reserve

as it prepares to meet next Tuesday and Wednesday. As long as demand appears to outstrip capacity -- and it should be noted that no one knows for certain exactly what that capacity is -- those in charge of monetary policy will feel compelled to prepare to rein things in.

And that's exactly what the Fed will do next week. A 25-basis-point rate hike is virtually assured, with the fed funds futures market and all 30 of the U.S. primary dealers of government securities expecting it. And few think the tightening will stop at that. Most economic forecasts are for a fed funds rate at least 50 basis points higher in June than it is today.

Earnings reports will be a bit more sparse today than they've been lately. But shortly after it has digested the ECI and GDP figures, the market will be get hit with a raft of new offerings. No fewer than seven IPOs were priced last night. For a complete list, take a look at last night's

Evening Update.

The large European bourses were mixed in early afternoon trading. The Paris

CAC

was up 60.85, or 1%, to 5749.20, while Frankfurt's

Xetra Dax

was up 11.04 to 7137.17. London's

FTSE

was 43.0 lower to 6398.0.

The euro was looking as anemic as ever, lately trading at $0.9841.

Overnight, equities had another strong showing throughout Asia.

Hong Kong's

Hang Seng

index climbed 268.13, or 1.7%, to 16,185.94. Investors were keen on

China Telecom

(CHL) - Get Report

, which added 3.5% on speculation that

Morgan Stanley Capital International

may include the stock in its

MSCI China Free

index.

In Tokyo, the

Nikkei

rose 225.06, or 1.2%, to 19,434.78.

The dollar traded around 104.90 yen though the Tokyo session, after the euro was also sold for dollars, which in turn was sold to buy yen. The greenback was lately sitting up at 105.2 yen.

Korea's

Kospi

index closed up 32.44, or 3.6%, at 941.67.

For a look at stocks in the preopen news, see Stocks to Watch, published separately.