Stock Market on Pins and Needles as FOMC Prepares to Meet

Economists expect Greenspan's gang to raise rates by 25 basis points this afternoon.
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After a session of voracious

buying on expectations of a benign

Federal Open Market Committee

meeting, stocks are taking a wait-and-see approach this morning.

Things should head lower in the early going. At 9 a.m. EDT, the

S&P 500

futures were off 4.8, about 2.5 points below fair value and indicating a dip at the open.

The real action will take place this afternoon, after the Fed concludes its fifth meeting of the year. A 25-basis-point hike in the federal funds rate is a given: Every one of the 30 U.S. primary dealers but

Bear Stearns

says so, as does the September

fed funds futures contract, which has priced in 94% of that hike. What's really at issue are whether the Fed will stick with its neutral bias and the general tone of the statement to be released at around 2:15 p.m. EDT.

Yesterday's huge rally tells us one thing: Despite the languorous air pervading much of the market since mid-July, people certainly seem to want to buy stocks again. And you've got to think that, wisely or foolishly, a neutral bias would let them do that, insofar as yesterday's surge was based on assumption that Fed won't be raising rates again ahead of Y2K.

Still, the market's upside sentiment may have been exaggerated by the low volume of recent sessions. Don't be surprised to see stocks move sharply in either direction as people start coming back into the market late in the afternoon.

Emblematic of that predicament is Paul Rich, a trader at

BT Brokerage

. Rich sees a big short-term rally if the Fed stands pat. On the other hand, he isn't absolutely ruling out the slim possibility of a 50-basis-point hike. If that happens, Rich said, "We'd tank."

But what about the more likely scenario of 25 basis points and a neutral bias? "I'd have to wait and see what the reaction is," he said.

The 30-year Treasury wasn't jumping the gun this morning. At 9:00, the long bond was off 6/32 to 101 25/32, its yield rising to 5.996%.

In Tokyo, stocks gave back some of the large gains garnered in the wave of positive sentiment spurred by Friday's news that

Industrial Bank of Japan

,

Dai-Ichi Kangyo Bank

and

Fuji Bank

planned to create a banking alliance with assets of about $1.3 trillion. Excluding those three banks, which extended their gains, financial stocks sold off with particular vigor.

The

Nikkei

fell 138.14, or 0.8%, to 18,095.41. The dollar continued its technical rebound against the yen overnight, lately sitting at 111.71 yen.

For the second straight day, bad weather related to Typhoon Sam kept Hong Kong markets closed for the morning session. For the second straight day, stocks surged when trading started in the afternoon, thus taking the

Hang Seng

up more than 200 points. And for the second straight day, investors took profits ahead of today's FOMC meeting. In the end, the Hang Seng gained 60.21 to 13,633.87.

The big European bourses were mixed toward midday in cautious pre-FOMC trading. London's

FTSE

was down 34.7 to 6287.4, while the Paris

CAC

was up 1.12 to 4488.47. Frankfurt's

Xetra Dax

was 28.70 lower to 5273.28.

Tuesday's Wake-Up Watchlist

By

Brian Louis

Staff Reporter

Mergers, acquisitions and joint ventures

Cyprus Amax Minerals

(CYM)

is facing pressure from shareholders to break ranks with

Asarco

(AR) - Get Report

on their pending get-together in light of

Phelps Dodge's

(PD) - Get Report

unsolicited bids to acquire Cyprus and Asarco for $2.7 billion in stock,

The Wall Street Journal

reported, citing people familiar with the situation.

Gentner Communications

(GTNR)

set a strategic partnership under which

Nextlink Communications

(NXLK)

will distribute Gentner's conference-calling services to its long-distance customers in Arizona, Colorado, Nevada, New Mexico, Oregon, Utah and Washington.

Nortel

(NT)

is buying

Periphonics

(PERI) - Get Report

for an estimated $436 million in stock.

Earnings/revenue reports and previews

(Earnings estimates are from

First Call

.)

Perry Ellis International

(PERY) - Get Report

posted second-quarter earnings of 23 cents a share, ahead of the two-analyst estimate of 17 cents and up from the year-ago 15 cents.

Regis

(RGIS)

posted fourth-quarter earnings of 32 cents a share, which excludes nonrecurring items, in line with the six-analyst estimate and up from the year-ago 27 cents.

Analyst actions

Morgan Stanley Dean Witter

upgraded

Duke Energy

(DUK) - Get Report

to strong buy from outperform.

Morgan Stanley Dean Witter downgraded

IMC Global

(IGL)

to neutral from outperform.

Credit Suisse First Boston

initiated coverage of

NetIQ

(NTIQ)

with a buy rating and put a price target of 29 on the stock.

PaineWebber

upgraded

Procter & Gamble

(PG) - Get Report

to attractive from neutral.

PaineWebber initiated coverage of

Salton

(SFP)

with a buy rating.

Miscellany

Responding to protests, online auctioneer

eBay

(EBAY) - Get Report

reduced a new fee and suspended plans to change bidding policies for some items, the

Journal

reported.

SBC Communications

(SBC)

is expected to launch telephone-service "bundles," aiming to compete with similar packages planned by

AT&T

(T) - Get Report

, the

Journal

reported.

Graphics computer maker

SGI's

(SGI)

acting CEO, Richard Belluzzo, resigned to accept a position at another company.

TheStreet.com

wrote about the situation in a story

last night.

Waste Management

(WMI)

named Donald R. Chappel CFO.

Offerings and stock actions

Siebel Systems'

(SEBL)

board approved a 2-for-1 stock split.