Stock futures fall ahead of Fed meeting

[August 10, 2010]  NEW YORK (AP) -- Stock futures retreated Tuesday as investors grew a little more cautious ahead of the Federal Reserve's meeting and after China's economy showed some signs of slowing down.

Overseas markets fell after Chinese trade figures showed a steep slowdown in the growth rate of imports, which has added new concerns to the pace of a global recovery. China has been looked at as a country that could help offset slowing demand for goods in the U.S.

Signs of waning growth in the U.S. will be the primary topic of conversation as the Fed meets Tuesday. Investors will be closely watching the statement the Fed puts out at the conclusion of the meeting to gauge the committee's view of the recovery and for any potential plans to restart stimulus programs in an effort to spark growth.

Chairman Ben Bernanke said a few weeks ago that the recovery's pace is "unusually uncertain," which spooked investors. Earnings and economic reports over the past couple of months have painted a mixed picture of the economy's health. Earnings have been very strong and companies have become more upbeat, but economic data continues to point toward slowing growth.

Economic reports due out Tuesday could provide insight into the economy's strength.

The Labor Department is expected to say productivity growth slowed in the second quarter to an annual pace of 0.2 percent, according to economists polled by Thomson Reuters. The slowdown in productivity could be a good sign because it means employers have halted layoffs and are running near peak efficiency. To grow further, companies would have to hire additional staff. High unemployment is a major obstacle to a stronger recovery.

Meanwhile, wholesale inventories and sales both likely rose in June, though inventories grew at a slower pace than May. Inventories likely increased 0.4 percent in June after rising 0.5 percent in May. Sales are predicted to have risen 0.5 percent in June after falling 0.3 percent in May.

Ahead of the opening bell, Dow Jones industrial average futures fell 56, or 0.5 percent, to 10,610. Standard & Poor's 500 index futures dropped 6.30, or 0.6 percent, to 1,119.30, while Nasdaq 100 index futures fell 9.75, or 0.5 percent, to 1,904.00.

Stocks rose Monday on growing expectations that the Fed would implement, or at least hint, that it plans to restart some stimulus programs that it let expire earlier this year when the economy looked to be recovering more strongly.

One widely speculated option would have the Fed take money it received from selling mortgage-backed securities it bought under previous programs to buy Treasury bonds.

That could have two effects on the financial markets. First, it would drive Treasury prices higher and yields even lower than their current levels, which could make them less enticing investments. If yields fell even more and prices rose further, it would make them less attractive investments. That would potentially push traders toward riskier, higher yielding investments like stocks.

It would also drive interest rates even lower because they are often set based on Treasury bonds, particularly the 10-year note. Pushing rates lower could drive consumers to start borrowing more and spending more because of the favorable rates.

Bond prices edged higher Tuesday. The yield on the benchmark 10-year Treasury note fell to 2.81 percent from 2.83 percent late Monday. It's currently hovering around levels last seen in April 2009 when the stock market was just starting a huge rally from its 12-year low.

Overseas, Hong Kong's Hang Seng index fell 1.5 percent, while Japan's Nikkei stock average fell 0.2 percent. Britain's FTSE 100 fell 0.3 percent, Germany's DAX index dropped 0.7 percent, and France's CAC-40 fell 0.8 percent.

[Associated Press; By STEPHEN BERNARD]

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