The major indices were solidly in the green heading into the far turn, but the market picture is currently a bit unsettled. Already, investors are backing off in anticipation of

the Federal Reserve's meeting next week. The market's expecting a 50 basis-point rate cut, and playing that positive against an earnings season that hasn't been stellar.

After months of dire projections for fourth-quarter earnings, companies that beat expectations and raise forecasts for future quarters are like manna from heaven. And the market gods tossed plenty of manna to the hungry bulls last night and this morning:

Merrill Lynch

(MER)

,

Computer Associates

(CA) - Get CA, Inc. Report

,

EMC

(EMC)

and

Tellabs

(TLAB)

all spit out satisfying numbers following yesterday's close.

The

Dow Jones Industrial Average was taking some heat from drug maker

Merck

(MRK) - Get Merck & Co., Inc. (MRK) Report

, which met earnings estimates this morning. Merck was the biggest weight on the blue-chip Dow, slashing 16 points from the index. Another drug company and member of the Dow,

Johnson & Johnson

(JNJ) - Get Johnson & Johnson (JNJ) Report

beat analyst expectations by a penny a share; still, it had recently turned down, losing 0.6% to $93.69.

Helping the Dow this morning were gains in the financial stocks,

American Express

(AXP) - Get American Express Company Report

and

Citigroup

(C) - Get Citigroup Inc. Report

.

Players expect a bit of listlessness in the days leading into the Fed meeting. Meanwhile, on Thursday, Fed Chairman Alan Greenspan is scheduled to speak before the

Senate Budget Committee

on fiscal challenges, but he is unlikely to show his hand just before the Fed meets next week. Comments from other Fed officials and recent economic data together have the market well convinced that a 50 basis-point cut is in the cards; currently the

fed funds futures traded on the

Chicago Board of Trade

are factoring in a 96% chance that this will happen.

Improved sentiment continues; winners were ahead of losers on both the

New York Stock Exchange and the

Nasdaq Stock Market, by counts of 16 to 10 and 18 to 16, respectively.

Tech bellwethers were mostly in the red, though, including software giant

Oracle

(ORCL) - Get Oracle Corporation Report

, computer titan

Microsoft

(MSFT) - Get Microsoft Corporation (MSFT) Report

and PC giant

Hewlett-Packard

(HWP)

.

Getting soundly trounced was

FreeMarkets

(FMKT)

. The B2B company was losing 22.3% to $20.75, making it one of the Nasdaq's top losers, after the company reported earnings yesterday and was hit with a slew of analyst downgrades this morning.

Openwave Systems

(OPWV)

was hogging the

TheStreet Recommends

Nasdaq spotlight and raking in the cash this morning. The communications software provider was the most actively traded stock on the Nasdaq and was soaring 14.9% to $61.25 after it posted a quarterly operating profit ahead of schedule and lifted its forecasts for this year's earnings. Openwave was formed through the merger of Phone.com and Software.com.

EMC was lately rising after losing a bit despite strong earnings. The storage software leader saw fourth-quarter earnings rise 49% to 25 cents per share, beating analyst estimates by 2 cents.

TheStreet.com

wrote a

separate story about how well-positioned the company is going forward. EMC was lately up by 0.8% to $77.06; it's up nearly 40% for the month.

Other earnings winners were also rising. Communications equipment maker Tellabs, which met fourth-quarter consensus estimates with earnings of 56 cents per share, was rising 7.1% to $57.56. Merrill Lynch, which

beat fourth-quarter earnings estimates -- due to increased fees for advising companies on mergers -- was up 3.7% to $77.88, a new high for the brokerage. Software maker Computer Associates, which beat fiscal third-quarter earnings estimates and

raised its earnings outlook for the fiscal fourth quarter, was up 4.1% to $33.56.

The semiconductor sector was weak, though, after generating a few bumps along the earnings trail last night with an

earnings warning from

Texas Instruments

(TXN) - Get Texas Instruments Incorporated Report

and a

revenue miss from

Vitesse Semiconductor

(VTSS)

. The

Philadelphia Stock Exchange Semiconductor Index

was down 0.8%.

And the two California utilities nearing bankruptcy were also lower today, with

PG&E

(PCG) - Get PG&E Corporation Report

down 2.6%, and

Edison International

(EIX) - Get Edison International Report

down 4.1%. The two stocks bounced Monday amid news of a possible plan for resolution to the state's energy crisis. But today

The Wall Street Journal

reported that California faces new threats to its electric system, "as utilities are no longer able to ask that power be turned off at big users operating under so-called interruptible contracts."

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Sector Watch

After being ignored while technology stocks were surging, cyclical names are moving higher in today's trading. The

Morgan Stanley Cyclical Index

was lately up 1.7%, helped along by gains in

Boeing

(BA) - Get Boeing Company Report

, up 1.5%, and

Illinois Tool Works

(ITW) - Get Illinois Tool Works Inc. (ITW) Report

, gaining 1.9%.

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Bonds/Economy

Treasuries are trading higher as institutional investors await critical economic developments due later this week. The increase in note and bond prices this morning, which broke the down trend of the last two business days, is primarily due to adjustment of overbought positions and trading "within the range." The markets will have more to react to in a couple of days, when employment data and the latest comments by

Federal Reserve chairman

Alan Greenspan become public. Bond prices were also lifted a bit after the

Bank of Canada

lowered interest rates by 25 basis points. The yield curve remains steep, with the difference between yields on the 2-year note and the long bond about 0.8%.

The benchmark 10-year

Treasury note lately was up 9/32 to 104 5/32, lowering its yield to 5.192%.

In economic news, the

BTM-UBSW Weekly Chain Store Sales Index

(

definition |

chart ) fell 0.7% in the week ended Jan. 20, after a 0.3% drop in the prior period. The loss is attributed to adverse weather on Saturday, considered the week's strongest shopping day, as well as to people staying home to watch the presidential inauguration. The year-to-year sales average is healthier, showing 3.1% growth, though it is lower than the 4.9% recorded 12 months ago.

The

Redbook Retail Average

(

definition |

chart ) found January sales running 2.4% ahead of December, narrowly exceeding a target of 2.3%. They were also 3.4% ahead of the previous January. However, this is the month when stores clear inventories, so most of the current sales will probably result in low profit margins. A more-accurate reading of consumer spending can be made in the second quarter of this year, after the proposed tax cuts, interest-rate corrections and rounds of mortgage refinancing have been completed.

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