Updated from 6:38 a.m. EST

Stocks were poised for a big-time swoon Wednesday as disappointing earnings from

Intel

(INTC) - Get Report

and

Yahoo!

(YHOO)

shook the foundations of this year's rally.

Index futures recently showed the

S&P 500

trading 8 points below fair value, while the Nasdaq 100 was set for a 29-point dive. The 10-year Treasury bond rose 4/32 in price to yield 4.32%, just 1 basis point above the two-year note, while the dollar fell against the yen and euro.

The selloff threatens to undo much of the 2006 rally, which entering Wednesday has lifted the

Dow Jones Industrial Average

98 points, or 4.4% and the

Nasdaq Composite

98 points, or 4.4%. Chances that a post-close earnings report from

Apple

(AAPL) - Get Report

will revive spirits are limited after CEO Steve Jobs outlined the quarter's highlights at a MacWorld conference last week.

Investors were coping with a spectrum of bearish catalysts Wednesday. In addition to tech's earnings travails, energy prices continued to weigh on sentiment. February crude was up 36 cents to a three-month high of $66.67 a barrel as political brinksmanship in Iran continued to raise anxiety.

Overseas markets were also a factor, with Japan's Nikkei falling another 3% as nervousness grew over government interest in Internet company Livedoor. Livedoor was raided by prosecutors on Tuesday and is now suspected of hiding losses from investors, according to local wire reports.

The Nikkei, which lost 2.9% Tuesday, shed 3% Wednesday to 15,341, with the Tokyo Stock Market forced to close 20 minutes early amid a flood of sell orders. Elsewhere, London's FTSE 100 was recently off 0.8% to 5652; Germany's Xetra DAX shed 1.5% to 5379; and Hong Kong's Hang Seng fell 0.6% to 15,481.

Back in the U.S., shares of both Intel and Yahoo! fell sharply in after-hours trading primarily because of weak sales and profit guidance for the current quarter.

IBM

(IBM) - Get Report

also traded lower on a mixed earnings report.

At Intel, fourth-quarter earnings rose 16% to $2.45 billion, or 40 cents a share, while revenue rose 6% to $10.2 billion. Analysts were expecting earnings of 43 cents a share on sales of $10.56 billion. Intel blamed unexpectedly weak sales of computer microprocessors and said PC makers might have built up excess inventory.

Looking ahead, Intel sees second-quarter revenue of $9.1 billion to $9.7 billion, well short of Wall Street's $10 billion consensus estimate. The company sees profit margins falling to about 59% in the first quarter from 61.8% in the fourth quarter. Intel traded just above $23 after hours, a level not seen in the stock since early November.

Yahoo! said fourth-quarter earnings rose 83% to $683 million, or 46 cents a share, and came in at 16 cents a share when adjusted for items, matching estimates. Net revenue rose 36% from a year ago to $1.07 billion, which also matched the consensus view.

Problems emerged on Yahoo!'s post-close conference call, where executives pegged first-quarter net revenue at between $1.04 billion and $1.1 billion, a range that investors interpreted as falling short of the $1.09 billion consensus. The forecast sent shares of

Google

(GOOG) - Get Report

lower in sympathy.

IBM, meanwhile, could do little to relieve the post-Intel gloom even though its fourth-quarter earnings were much better than expected. The computer giant earned $3.19 billion, or $1.99 a share, compared with $2.83 billion, or $1.67 a share, a year ago. Adjusted earnings of $2.11 a share were 17 cents ahead of the consensus.

Things weren't as rosy on IBM's top line, which showed a 12% decline to $24.43 billion because of the exclusion of the divested PC division. Analysts were forecasting revenue of $25.5 billion. Analysts pointed to a shortfall in the company's services division, although they were encouraged by stronger-than-expected bookings.

Wednesday morning's earnings news were marginally better, with

J.P. Morgan

(JPM) - Get Report

reporting a 62% jump in year-over-year profits to $2.70 billion, or 76 cents a share. Adjusted earnings were a penny ahead of estimates.

Southwest Air

(LUV) - Get Report

said it earned $86 million, or 10 cents a share, in its fourth quarter, up from $56 million, or 7 cents a share, last year. Adjusted earnings of 12 cents a share, however, were a penny shy of estimates.

The earnings deluge drowned out the latest development in

Guidant's

(GDT)

takeover saga. Guidant late Wednesday took the widely anticipated step of declaring an $80-a-share buyout offer from

Boston Scientific

(BSX) - Get Report

superior to a $71-a-share bid from

Johnson & Johnson

(JNJ) - Get Report

. J&J has roughly a week to come back with a higher offer for the device company.