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Today's Market: Stocks Mixed in Early Action Following IBM's Strong Report

Big Blue might be expected to fire up the tech sector, but other companies issued more-troubled forecasts.

Everyone was waiting for IBM's (IBM) - Get International Business Machines (IBM) Report earnings last night. And you might think the tech bell-cow's heart-warming fourth-quarter report and outlook would inspire another rip-roaring rally today on the Nasdaq.

But it may not be that easy. Despite growing expectations of short-term rally on the Nasdaq, there are still a few humps to hurdle.

In early action, the

Dow Jones Industrial Average was up 12 to 10,598, the

Nasdaq Composite was up 9 to 2692 and the

S&P 500 was up 2 to 1332.

In the thick of earnings season, and despite aggressively lowered earnings estimates, some companies continue to disappoint. Meanwhile, the energy crisis in California is worsening and threatens to bankrupt two huge utilities --

Edison International

(EIX) - Get Edison International Report

and

PG&E

(PCG) - Get PG&E Corporation Report

. And that would have repercussions far and beyond -- it would certainly be bad news for creditor banks.

The California utilities were given some extra time to pay delinquent bills by Gov. Davis last night. The governor declared a state of emergency last night, ordered the state to buy power through the Department of Water Resources and authorized rolling blackouts.

In any case, earlier weakness in futures had turned to strength shortly before the bell. "We're going to drift a little higher this morning," said Todd Clark, head of listed trading at

W.R. Hambrecht

.

"We need three things out of this session: stronger breadth than we saw yesterday -- like 2 to 1-- continued higher volume, and to close stronger rather than weaker. We need to close stronger because we're bumping up against some big supply issues

stock for sale and we still haven't broken out of a down trend line. We need an up close to show that the market is eating through some of that supply," he added.

Merrill Lynch

was one of those predicting a short-term rally this morning. In a research note, the firm said that a short-term rally "appears to have arrived" and said it expects tech stocks to rise over the next 4-10 weeks "despite poor fundamentals."

"Because we are more aggressive short-term, we are downgrading services to an equal weighting from overweight and boosting semiconductors to equal from underweight," said the Merrill report.

The firm also added weightings in communications equipment, semiconductors, and software and recommends photonics, applications/middleware software, and technical software.

Some say -- as the first week of earnings season comes to a close -- that investors have begun to turn away from earnings as a barometer of the overall tone of the market and focus instead on an anticipated recovery of the economy some six months down the line. After all, this past fall a flood of downward revisions to earnings forecasts sent the market spinning lower, and some think all the bad news is already priced into the market.

Perhaps the biggest question now is how much of an interest-rate cut the market will get from the

Fed when it meets at the end of the month. Market pros wonder whether the central bank will knock off a quarter point or a half point. It's tough to gauge. Last Friday's

Producer Price Index fired up some concern that inflation remains a problem, and some began to worry that we would get only a quarter-point cut. But yesterday's

Consumer Price Index, and

industrial production numbers reassured some that a half-point is still in the cards.

Today, the market got a peek at initial jobless claims for the week ended Jan. 13 and at November housing starts. Jobless claims came in at their lowest since Sept. 30 at 301,000. Economists were expecting the opposite -- a jump in jobless claims to 360,000 from 345,000 the previous week. December housing starts meanwhile, grew 0.3% to 1.575 million units, despite expectations that they would fall to 1.508 million from 1.562 million the previous month.

Housing starts are considered a good gauge of home sales and home-related spending as a whole. Some market watchers say that a pickup in new home purchases would be an important sign that the consumer is finally responding to the Fed's interest-rate cut earlier this month. Following that rate cut, refinancing of mortgages and loans has picked up.

In an environment where interest rates are falling, some market-watchers say financials are the place to be. "Expectations of below-trend growth, fewer concerns about inflation and the first signs of monetary easing explain why there has been a shift in favor of banks -- fund managers' favorite global sector," said strategist Owain Evans in a report issued yesterday from

Merrill Lynch

global. "There has also been a move towards the previously out of favor value cyclicals. We think this move is too early and prefer financials that will benefit from steepening yield curves and a reduction in credit concerns."

Investors didn't follow this advice yesterday. Financials fell following an earnings miss from

J.P. Morgan Chase

(JPM) - Get JPMorgan Chase & Co. (JPM) Report

. An industrywide slowdown in some investment banking and securities brokerage areas, along with worries that weakening credit quality could hurt banks' loan portfolios, has investors expecting a lot of

bad news from the banking sector this earnings season.

Last night's earnings roundup: IBM beat earnings and revenues estimates and said it's comfortable with forecasts for 2001;

Apple Computer

(AAPL) - Get Apple Inc. (AAPL) Report

beat already lower forecasts, but the loss marked the company's first in three years. And several companies missed already lowered earnings numbers or issued troubled forecasts: Specialty chipmaker

Xilinx

(XLNX) - Get Xilinx, Inc. (XLNX) Report

missed estimates, networking company

Redback Networks

(RBAK)

said gross margins are declining, bellwether chipmaker

Advanced Micro Devices

(AMD) - Get Advanced Micro Devices, Inc. Report

missed already revised estimates and said it expects flat first-quarter revenue.

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Bonds/Economy

Bond prices were soaring this morning after closing stronger yesterday. The benchmark 10-year

Treasury note was lately up 25/32 at 104 19/32, yielding 5.138%.

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International

Timid gains in Europe earlier this morning faded as the U.S. market open approached. The major European indices were lately in the red. As expected, the

European Central Bank

did not change interest rates when it met today.

London's

FTSE

was falling 0.70 to 6916.70. Across the channel, Paris'

CAC-40

was falling 26.84, or 0.46%, to 5857.25. Frankfurt's

Xetra Dax

was down 47.22, or 0.71%, to 6606.16.

The dollar was trading up against the euro, lately at $0.9411 this morning. The euro has been slowly gaining in the past few weeks as the U.S. dollar weakens in the face of a slowing domestic economy. Fund managers are now forecasting that Europe will grow faster than the U.S. this year, according to a

Merrill Lynch

report.

Asian markets soared overnight, as optimism over the Nasdaq's rally yesterday led tech stocks there higher.

Tokyo's key

Nikkei 225

index rose for a fifth straight session after hitting a 27-month low last Thursday. The index closed up 206.29, or 1.51%, to 13873.92.

Hong Kong's key

Hang Seng

index closed up 267.27, or 1.75%, to 15,528.75.

The greenback was lately dropping against the yen, trading at 118.45 yen.

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global indices information.

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Timid gains in Europe earlier this morning faded as the U.S. market opened, and the major indices were lately mixed. As expected, the

European Central Bank

did not change interest rates when it met today.

London's

FTSE

was up 12.10 to 6209.50. Across the channel, Paris'

CAC-40

was falling 9.42, or 0.16%, to 5874.67. Frankfurt's

Xetra Dax

was down 33.69, or 0.51%, to 6619.69.

The dollar was trading at $0.9398 this morning. The euro has been slowly gaining in the past few weeks as the U.S. dollar weakens in the face of a slowing domestic economy. Fund managers are now forecasting that Europe will grow faster than the U.S. this year, according to a Merrill Lynch report.

Asian markets soared overnight, as optimism over the Nasdaq's rally yesterday led tech stocks there higher.

Tokyo's key

Nikkei 225

index rose for a fifth-straight session after hitting a 27-month low last Thursday. The index closed up 206.29, or 1.51%, to 13873.92.

Hong Kong's key

Hang Seng

index closed up 267.27, or 1.75%, to 15,528.75.

The greenback was lately trading at 118.515 yen.

For more on world stock markets, check out

TheStreet.com's

global indices information.

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