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Stock futures indicate modest pullback after rally

NEW YORK - Wall Street prepared to cash in some of its gains Wednesday a day after its enormous surge and as investors awaited an afternoon decision on interest rates from the Federal Reserve.

Stock market futures indicated stocks would show modest declines at the open, though a pullback wasn't a surprise after the nearly 900-point gain logged by the Dow Jones industrials on Tuesday. The Dow and the Standard & Poor's 500 index posted gains of nearly 11 percent, while the Nasdaq composite index rose 9.5 percent as investors, confident about the prospects for a rate cut, piled into the market to pick up stocks that have become bargains.

The Dow's 889-point gain was its second-largest; the biggest was a 936-point surge on Oct. 13. that later evaporated as fears about the economy grew. Beyond a simple case of investor indecision, the market's back-and-forth moves may also be part of its attempt to establish a bottom.

The market's run-up Tuesday appeared to be largely holding early Wednesday though some investors planned to lock in profits. Dow futures fell 36, or 0.40 percent, to 9,053. S&P 500 index futures fell 5.00, or 0.53 percent, to 933.70, while Nasdaq 100 index futures fell 18.50, or 1.41 percent, to 1,289.50.

But stock market futures have lately been a less reliable indicator of how the market would open given the extreme volatility that has battered Wall Street since last month's freeze-up of the credit markets. The troubles with the credit markets have made it harder and more expensive for businesses and consumers to get a loan.

Moves by hedge funds and mutual funds to exit positions have added to the market's volatility, analysts say, adding that the market likely won't carve out a sustained recovery until some big players halt more of their selling.

While signs have emerged that the government action to revive credit markets is starting to work, investors remain skittish over the effects on the economy, which relies on lending to feed growth.

The market will be awaiting the Fed's decision on interest rates, which is due at 2:15 p.m. EDT (1815 GMT). Wall Street expects policymakers will lower the fed funds rate by a half point to 1 percent, though there has been speculation that smaller or wider cuts are possible.

The only certainty is that Wall Street will pore over the Fed's statement on its decision and its reading of the economy. That, along with any move on rates themselves, could lead the market to retreat, rally or simply shrug off a move that it writes off as expected.

Investors are hoping a rate cut by the Fed would complement the government's still-unfolding efforts to aid the commercial paper market, where companies turn for short-term loans, and the banks themselves. The Treasury this week is investing directly in banks, hoping the cash will make them more likely to issue loans.

Beyond readying for any move by the Fed, investors will be examining a report on orders for big-ticket durable goods, which is expected to show a decrease in demand for a second straight month.

Wall Street expects the Commerce Department report, due at 8:30 a.m. EDT (1230 GMT), will show that orders for durable goods, which are expected to last at least three years, fell 1.5 percent last month.

Meanwhile, investors could find encouragement from an ease in demand for some types of government debt. The yield on the three-month Treasury bill, regarded as the safest investment around and an indicator of investor sentiment, rose to 0.84 percent from 0.74 percent Tuesday. The higher yield indicates a decrease in demand. Meanwhile, the yield on the benchmark 10-year Treasury note fell to 3.82 percent from 3.84 percent late Tuesday.

Light, sweet crude rose $3.36 to $66.09 in premarket electronic trading on the New York Mercantile Exchange.

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New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com