Stocks Show Positive Bent as Market Counts Down to 2:15

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The

Federal Open Market Committee

meets today, and for the first time in over a year, it matters.

It is such a certainty that the

Fed

will ease rates today that the debate has moved to whether it will cut the fed funds target by 0.25% or by 0.5%. There's also a lot of chatter about the possibility that the Fed will also cut the discount rate, the interest rate commercial banks and other depository institutions pay when they borrow from regional Fed banks. That rate hasn't budged in nearly three years.

The possible rate-cut combinations -- a 25-basis-point cut in the fed funds rate coupled with a 50-basis-point cut in the discount rate; a 50-basis-point cut in the fed funds rate with no cut in the discount rate, etc. -- have sent Wall Street into all kinds of paroxysms. There are some who say, for instance, that a 25-basis-point cut in the fed funds rate would be too light, and stocks would sell off. There are others who say that a 50-basis-point cut would suggest that things are pretty bad out there and scare the market.

Hence the thought that the discount rate may get clipped -- more symbolic, such a move would suggest more cuts to come. It also comes with an explanatory note, which seems to fit the Fed's purposes. If the main reason for easing is to calm nervous markets, why not offer a little guidance to make damn sure it happens?

Though stocks look pretty good out of the gate, traders expect that volume will be on the light side ahead of 2:15 p.m. EDT, when the decision on rates will come down.

"It's going to be kind of a slow day," said Dan Mathisson, head stock trader at

D.E. Shaw

. "It's rare that you get a day when people are so focused on one thing. People are going to be waiting all day long to get confirmation."

Stocks look strong going into the morning. At about 9 a.m., the

S&P 500

futures were up 0.4, a little less than 6 over fair value, indicating a positive open. The Treasury market is holding steady -- the long bond was up 1/32 to 105 17/32, putting the yield at 5.13%.

Tokyo stocks lost ground on worries that the failure of

Japan Leasing

will cause a serious credit crunch. Under the previous, soft-landing plan for

Long Term Credit Bank

, Japan Leasing would have been forgiven its LTCB and

Sumitomo

debts, allowing it to pay off its loans to other institutions. Now that LTCB will have a hard landing, and Japan Leasing has, as a result, failed, those other institutions are in a bind. About 70 agricultural cooperatives own loans to Japan Leasing, as does

Bank of Tokyo-Mitsubishi

(

(MBK)

MBK ADR), which has about 85.8 billion yen ($640 million) in Japan Leasing loans.

Stocks recovered late on reported buying by public pension funds. The

Nikkei

dropped 87.94 to 13,821.43.

Hong Kong stocks slipped on profit-taking ahead of the long weekend. The

Hang Seng

fell 108.43 to 7837.61. Hong Kong's markets will be closed Thursday and Friday.

European stocks were mixed. In Frankfurt, the

Dax

was down 46.74, or 1%, to 4607.2. In Paris, the

CAC

was down 12.52 to 3325.12. In London, the

FTSE

was up 7.2 to 5100.7.

Tuesday's Wake-Up Watchlist

By

Brian Louis
Staff Reporter

  • Merrill Lynch quantitative strategist Rich Bernstein said his model is giving a formal sell signal. Bernstein changed his asset allocation to 40% stocks, 50% bonds and 10% cash from 50% stocks, 50% bonds.
  • Cendant ( (CD) CD) restated 1997 results to a loss of $217 million, or 27 cents per share, from net imcome of $55 million, or 6 cents a share, as a result of a new accounting regime. Cendant also forecast the accounting policy would shave 7 to 9 cents a share from 1998 earnings. Shares of the former highflier sank early this year when Cendant disclosed that accounting irregularities at a predecessor company, CUC International, made its books unreliable.
  • Major steel makers are preparing to file complaints of unfair trade against a handful of nations in an effort to stop the recent collapse of U.S. steel prices, The Wall Street Journal reported, citing people familiar with the plans. Lehman Brothers steel analyst Richard Aldrich upgraded a number of steel stocks last week in part because of the planned antidumping cases.
  • Merrill Lynch upgraded Chase Manhattan ( (CMB) CMB) to near-term accumulate from near-term neutral and maintained its long-term buy rating. Merrill said the upgrade reflected a "sharply improved risk-return tradeoff and size-diversification advantages."
  • Goodyear ( (GT) - Get Report GT) warned it expects to report third-quarter earnings of $1.15 to $1.20 a share. First Call's seven-analyst consensus estimate calls for third-quarter earnings per share of $1.22, up from $1.16 a year earlier.
  • Hillenbrand ( (HB) HB) reported third-quarter earnings of 63 cents per share, up from 51 cents a year ago. First Call's five-analyst consensus projected earnings of 60 cents per share.
  • Talks between International Multifoods ( (IMC) IMC) and Archer-Daniels-Midland ( (ADM) - Get Report ADM) regarding the sale of International Multifoods' Venezuelan food unit have ended.
  • Liberty Media ( (LBTY) LBTYA), the programming arm of Tele-Communications ( (tcom) TCOMA), is forming a unit to develop interactive programming, and aims to convert a channel on TCI systems into a dozen or more digital channels, the Journal reported today, citing executives familiar with the plan.
  • AMR ( (AMR) AMR), parent of American Airlines, will sell its global services unit to focus on its core business.
  • Health Risk Management ( (HRMI) HRMI) reported a fourth-quarter loss of 5 cents per share compared with profits of 12 cents per share a year earlier. Both figures reflect a new revenue-recognition accounting policy, which the company said it adopted in an effort "to be more consistent with the HMO industry."
  • Canandaigua Brands ( CBRNA:Nasdaq) reported second-quarter earnings of 83 cents a share, up from the year-ago 65 cents. First Call's six-analyst consensus estimate called for earnings of 81 cents.
  • Nautica Enterprises ( (NAUT) NAUT) reported second-quarter earnings of 46 cents per share, up from the year-ago 36 cents and ahead of First Call's 12-analyst estimate of 43 cents.
  • Giant Industries ( (GI) GI) set a 1 million-share buyback program.