Stocks Retreat Ahead of Bernanke

China raises interest rates while Honeywell is downgraded.
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Stocks were poised for some fairly significant weakness early Thursday as traders leaned to the short side ahead of congressional testimony from

Federal Reserve

chairman Ben Bernanke.

Index futures recently showed the

S&P 500

trading 3 points below fair value, while the Nasdaq 100 was set for a 5-point decline. The 10-year Treasury bond was down 2/32 in price, pushing the yield up to a four-year high of 5.12%, while the dollar rose against the euro and fell against the yen.

Bernanke's testimony before the Joint Economic Committee of Congress could be crucial evidence in the market's efforts to anticipate the future of interest-rate policy. Traders currently foresee another quarter-point hike in the fed funds rate next month, and are starting to believe more tightening is in the cards when the Fed meets in June.

Bernanke, who will be making his second appearance before Congress, has committed the Fed to a reactive policy stance, one that weighs each piece of economic date for its inflationary significance. Recent readings on home sales and durable goods orders, plus the Fed's beige book report Tuesday, have been problematically strong.

Stocks were able to shake off inflation concerns Tuesday and rise, with the

Dow Jones Industrial Average

leading the way higher with a 71-point advance to 11,354, a six-year high. The S&P 500 gained 4 points to 1305, while the

Nasdaq Composite

inched up 3 points to 2334.

Bernanke begins his Capitol Hill address at 10 a.m. EDT. Other economic news slated for Thursday is the Labor Department's report on first-time jobless claims and details of a Treasury Department note auction this afternoon.

Another monetary authority, China's People's Bank, is also in tightening mode. The central bank on Thursday raised its benchmark lending rate to 5.85% from 5.58%. "The increase in the lending rate is aimed at further strengthening the fruits of macro controls and keeping solid momentum for the economy to grow in a continuous, rapid, coordinated and healthy manner," the bank said.

To view David Peltier's video take on today's premarket action, click here

.

Oil, which has lost more than 3% this week after topping out above $75 a barrel on Friday, continued to ease, recently losing 81 cents to $71.13 on the June contract. Overseas, London stocks are off 1.2% to 6034, while Germany is down 1% to 6050. Japan's Nikkei rose 0.3% overnight to 17,115 and Hong Kong added 0.3% to 16,743.

A downgrade of

Honeywell

(HON) - Get Report

to underweight from neutral at JPMorgan also weighed on sentiment early Thursday.

Meanwhile, the first-quarter earnings season isn't letting up, with big reports due later Thursday from

Microsoft

(MSFT) - Get Report

and

Conexant

(CNXT) - Get Report

.

Beazer Homes

(BZH) - Get Report

reported its results Thursday morning, saying first-quarter earnings rose 24% to $104.4 million, or $2.35 a share. The number missed estimates and Beazer also issued guidance that was slightly shy of forecasts.

Things were worse at

Centex

(CTX)

, where fourth-quarter earnings from continuing operations rose to $375.8 million, or $2.92 a share, missing estimates by 19 cents. New orders fell by 11% and the homebuilder slashed 2007 guidance.

Starwood's

(HOT)

first-quarter earnings were 41 cents a share before items, beating the Wall Street consensus of 34 cents a share. For the second quarter, Starwood expects to earn 58 cents a share, 2 cents ahead of forecasts.

Aetna's

(AET)

quarterly earnings rose 3% to $401.7 million, or 68 cents a share, while adjusted earnings of 64 cents a share were a penny better than expected. The insurer also bumped up full-year guidance.

Late Wednesday,

Xilinx

(XLNX) - Get Report

posted fourth-quarter earnings of $110.7 million, or 32 cents a share, beating estimates. At $472.3 million, sales were about $7 million ahead of forecasts.

Cendant

(CD)

posted a first-quarter adjusted profit of 16 cents a share, beating estimates, as the travel and hospitality conglomerate saw revenue gains in each of its four units. Guidance for 2007 remained intact.