Morning Update

Sentiment Humbled After Yesterday's Stumble

Stocks are higher in early action following yesterday's sharp selloff on continued concerns about the global economy and health of financials, which sent the Dow Jones Industrials below the psychological level of 7,000. However, sentiment remains squeamish and trading is choppy in early action as traders try to gauge how much further the global recession has to go. The Wall Street Journal's report that the Obama Administration is considering more relief for toxic bank assets is providing some relative support to sentiment on the Street. In equity news, AutoZone trounced analysts' earnings expectations, Xilinx raised its sales forecast, while International Game Technology cut its dividend. Treasuries are lower and overseas, Asia was lower and Europe is flat.

As of 8:43 a.m. ET, the March S&P 500 Index Globex futures contract is 14 points above fair value, the Nasdaq 100 Index is 16 points above fair value, and the DJIA is 87 points above fair value. Crude oil is up $1.25 to $41.40 per barrel, and gold is down $11.70 at $928.30.

AutoZone (AZO $140) is gaining ground after the company reported fiscal 2Q EPS increased 21.0% to $2.03, easily topping the Reuters estimate of $1.85, as revenues rose 8.1% to $1.4 billion, and same-store sales for the quarter advanced 6.0%. The auto parts retailer said at the end of 2Q, its balance sheet was in excellent condition.

Xilinx (XLNX $17) raised its 4Q sales forecast from an expected decline of 15-25% to a new range of a 13-18% drop in sales. The programmable chip maker said the increased guidance was due to better-than-expected wireless communication sales.

International Game Technology (IGT $8) reduced its quarterly dividend from $0.145 per share to $0.06 per share. The gaming machine manufacturer said, "In the current environment, we believe a revised dividend is the most prudent decision and in the best interest of IGT and our stakeholders." IGT also said an "unprecedented" credit market environment and recessionary economic conditions have surpassed industry revenue expectations for the near term.

Obama Administration reportedly discussing investment funds, housing on tap

The Wall Street Journal is reporting that the Obama Administration is considering a plan to purchase bad loans and other distressed assets by creating multiple investment funds, citing people familiar with the matter. The funds would be part of what the administration is calling a private-public financial partnership aimed at removing the toxic assets off of struggling bank balance sheets. The Obama administration did not comment. The plan would join the plethora of government packages announced recently, which has boosted the government's balance sheet and ramped up federal spending.

Treasuries are lower after yesterday's advance amid the tumbling equity markets, as traders await more data on the housing front. Later today on the economic docket, traders will get a look at the pipeline of existing home sales with the release of pending home sales for January, forecast to fall 3.5% month-over-month. While builders have significantly slowed the pace of new home starts, hope for a near-term bottom in home prices is being stifled by still-high inventories of new and existing homes, tight lending standards and dour consumer sentiment. Nevertheless, some blocks of a stabilizing housing foundation are falling into place. Read more on their market perspective at www.schwab.com/marketinsight.

Also, Fed Chairman Ben Bernanke will speak before the Senate Budget Committee at 10:00 a.m. ET, on the US economy and budget.

Off of new lows in Europe

Stocks in Europe extended yesterday's sharp decline in early action as financials continued to trade under pressure, as exacerbated global economic woes took some major indices to new multi-year lows. The Dow Jones Stoxx 600 Index touched the lowest level since November 1996, while the FTSE 100 in London has fallen below the 3,600 mark for the first time since March 2003. The new lows follow the sharp decline on Wall Street yesterday, which took the Dow Jones Industrial Average below the psychological level of 7,000. The worsening conditions across the pond is prompting traders to expect rate cuts from the European Central Bank and the Bank of England, which are both expected to reduce their key interest rates by 50 basis points at their respective policy meetings on Thursday. However, stocks have recovered from early losses and are nearly unchanged in afternoon action.

On the equity front, drugmaker Bayer (BAYRY $45) is lower after reporting 4Q earnings that missed the estimate of analysts surveyed by Bloomberg. The world's second largest maker of building materials, CRH (CRH $19), is also under pressure after announcing it plans to raise capital by selling new shares. However, shares of Standard Chartered (SCBFF $8) are higher after the UK's second largest bank by market value said 2008 earnings increased 20%, beating analysts' forecasts due to revenue from corporate lending.

Asia reacts to banking and economic concerns

Stocks in Asia were broadly lower as traders reacted to the exacerbated fears toward the financial sector, which led to the solid declines in Europe and the US markets yesterday. While financials led the Asian decline, amplified concerns about the depth and duration of the global recession also weighed on sentiment as commodity-related issues fell on fears regarding the impact of the global economic slide on demand. Japan's Nikkei 225 Index threatened a fresh 26-year low before paring losses, but finished down 0.7%, while Korea's Kospi Index was one of the lone markets in the region to finish higher after it gained 0.7%.

In Australia, stocks finished about 1.0% lower, but recovered some of their losses after the Reserve Bank of Australia left its key interest rate unchanged at 3.25%, surprising some traders as the consensus called for a 25 basis point reduction. Also, the Japanese government said it may lend about $5 billion of foreign exchange reserves to the Japan Bank for International Cooperation, aimed at helping increase loans to companies operating overseas.