Morning Update

Stocks Drifting Lower in Light Action

Markets are modestly lower again this morning as there are no new catalysts for stocks, which may be prompting some traders to book profits from the recent rally. Stocks were higher for six-straight sessions, although none of the gains were particularly large, before that streak came to an end yesterday in light trading. Trading volume is expected to be lower-than-normal again today, as is typical during the holiday season. In equity news, GMAC is reportedly close to receiving a third round of bailout funds from the government, Pfizer announced that it has stopped testing its experimental lung cancer treatment after determining the drug was unlikely to prove effective, chipmaker Broadcom agreed to pay $160.5 million to settle shareholder lawsuits over its stock option accounting practices, and Kforce said its suspension from winning government business has been lifted. Meanwhile, Treasuries are almost unchanged ahead of the release of the Chicago PMI report and a 7-year note auction to be held later today. In overseas action, European stocks are also lower in lackluster trading, while Asian shares finished mixed amid continued speculation that bailed-out carrier Japan Airlines will file for bankruptcy.

As of 8:40 a.m. ET, the March S&P 500 Index Globex future is 5 points below fair value, the DJIA is 34 points below fair value, and the Nasdaq 100 Index is 4 points below fair value. Crude oil is down $0.09 at $78.78 per barrel, and the Bloomberg gold spot price is lower by $4.01 at $1,092.83 per ounce. Elsewhere, the Dollar Index-a comparison of the US dollar to six major world currencies-is up 0.1% at 77.96.

Struggling lender GMAC will reportedly receive another $3.5 billion in government aid, according to a report from the Wall Street Journal that cited unnamed sources close to the situation. That would be on top of the $12.5 billion it has already received. The report said the new capital could prevent GMAC from placing its struggling mortgage unit Residential Capital, or ResCap, into bankruptcy. "As we have previously stated, GMAC has been conducting a strategic review of its business and evaluating options to address the challenges at ResCap and the mortgage operations," a GMAC spokeswoman said in a statement, while adding that the company has no new announcements to make at this time. The Treasury will only say that it is in discussions with GMAC to ensure that its capital needs are met.

Dow member Pfizer (PFE $19), maker of the world's best-selling drug Lipitor, said it stopped testing its experimental lung cancer drug, which was in a Phase 3 trial. The company said an independent safety committee determined the treatment was unlikely to prove effective in treating the disease.

Elsewhere, chipmaker Broadcom Corp. (BRCM $31) said it has agreed to pay $160.5 million in cash to settle shareholder lawsuits over its stock option accounting practices, although it did not admit any wrongdoing as part of the settlement. Shareholders initially sued the company in 2006, claiming they lost money when the company restated earnings for a four-year period by $2.2 billion because of backdated stock options. It was the largest restatement for any US company related to backdating, a practice that sparked federal investigations of dozens of companies and led to criminal charges of securities fraud against Broadcom executives.

Meanwhile, recruitment firm Kforce Inc. (KFRC $11) said its suspension from winning US government business has been lifted. Under the agreement, the company must return to the Department of Interior its profit on a project issued in 2008, and it will also be required to improve its existing compliance program and controls. Shares came under pressure earlier this month when the company was suspended from winning government contracts, amid allegations that the firm assisted the Bureau of Land Management to create a request for a project, which was later awarded to Kforce.

Chicago purchasing manager survey to headline economic calendar

The economic calendar will be relatively light, with only the release of the Chicago PMI slated for today. That report is expected at 9:45 AM ET, and is forecasted to show a slight pullback to 55.1 in December from the 56.1 reading logged in November, although that would still be well above the 50.0 level that signals the breakeven point between expansion and contraction. Treasuries are currently nearly unchanged in advance of the report and ahead of a sale of $32 billion in 7-year notes later today.

The Mortgage Bankers Association, which ordinarily releases its weekly mortgage applications report on Wednesdays, will not do so this week because of the holidays. Instead, it will release two weeks' worth of data next Wednesday.

European stocks drift lower in lackluster trading

Stocks in Europe are under mild pressure, although activity is low with many traders away from their desks due to the holidays. The UK's FTSE 100 Index, France's CAC 40 Index, and Germany's DAX Index are all down less than 1% after recently touching new highs for 2009. Pressure from overseas trading appears to have carried over to Europe somewhat, after the US markets saw their winning streak snapped yesterday to weigh on shares somewhat and cause European traders to book profits as the year comes to a close. In equity news, Basilea Pharmaceutica (BPMUF $74) is sharply lower after the US Food and Drug Administration rejected the Swiss biotech company's experimental treatment for skin infections. The FDA reported that data from clinical trials proved "unreliable or unverifiable," and requested two new studies on the drug, the company said.

Airlines pressure Japan as Asian shares finish mixed

The Nikkei 225 Index was 0.9% lower today, led by Japan Airlines (JALSF $0.99) which came under heavy selling pressure amid growing concern the struggling airline may file for bankruptcy protection. The stock lost more than 20% of its value as a local newspaper reported that the Japanese government met to discuss the state-owned airline's future. The company did not comment on the report. Elsewhere in Asia, South Korea's KOSPI Index added 0.6% in spite of sharp losses for conglomerate Kumho Asiana Group, which said it will place two of its companies, Kumho Tire, and Kumho Industrial into a debt workout program to shore up their balance sheets. Elsewhere, Australia's S&P ASX 200 Index shed 0.2%, while Hong Kong's Hang Seng Index was flat and China's Shanghai Composite rose 1.6%.