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US futures point to lower Wall St on rate worries

LONDON - US stock futures fell on Wednesday, indicating a lower start on Wall Street as the prospect for equities-supportive rate cuts dimmed and the outlook for financial stocks became increasingly murky.

US benchmark indexes came under pressure on Tuesday after a report that Lehman Brothers may need to raise additional capital and Federal Reserve Chairman Ben Bernanke issued a rare warning about the risk to inflation from the weaker dollar.

The Wall Street Journal said on Wednesday Lehman is looking to raise capital overseas and has approached at least one investor in South Korea.

By 0957 GMT, June US futures had fallen 0.3 percent, while the dollar steadied against a basket of major currencies following Tuesday's hefty gains and government bond prices eased .

‘It's not so much what (Bernanke) said that is going to impact the equities market, but the realisation perhaps that some of the assumptions that the markets have been operating on in recent weeks are probably going to seem to be way too optimistic,’ said Commerzbank economist Peter Dixon.

‘We're starting to see markets price in a slightly more pessimistic outlook for earnings going forward, and if they're not cutting rates any time soon, every time you cut earnings estimates that is bad news for your equity valuations,’ he said.

‘In the past, the market has cut earnings expectations. At the same time expectation for rate cuts was offsetting that ... that process is now at an end.’

Lehman shares fell 9.5 percent to near a five-year low on Tuesday on concerns that it may need to raise more capital.

In Frankfurt, Lehman shares were trading down 0.7 percent at 20.10 euros. In more negative news for financials, an analyst at Merrill Lynch said Bank of America will face earnings pressure through 2010 because of its broad exposure to the US consumer and to mortgage-related loans.

Analyst Edward Narajian estimated losses on the portfolio of Countrywide Financial, which Bank of America agreed to buy in January, could result in mark-to-market writedowns of $10 to $12 billion.

‘I would say 'stay out of financials' because ... they're still stuck firmly in a downtrend and anyone who tries to catch the lows on these stocks is playing Russian roulette with their money,’ said City Index analyst Tom Hougaard.

‘It's the lack of transparency that is driving this market lower. It is simply the inability by investors to price in the risk associated with being in equities at the moment.’

On Tuesday, the Dow Jones industrial average fell 100.97 points, or 0.81 percent, to close at 12,402.85. The Standard & Poor's 500 Index slipped 8.02 points, or 0.58 percent, at 1,377.65, while the Nasdaq Composite Index was down 11.05 points, or 0.44 percent, at 2,480.48.

Beyond the financial sector, Dutch office goods wholesaler Corporate Express will open its books to Staples, which has made an unsolicited bid for the company, Het Financieele Dagblad said on Wednesday.

Staples lifted its offer on Tuesday to 9.15 euros a share, or 1.7 billion euros ($2.65 billion) in total, contingent on Corporate Express shareholders rejecting the company's plan to buy privately owned French peer Lyreco. Meanwhile, Yahoo Inc on Tuesday set its annual shareholder meeting on for Aug. 1 in the heart of Silicon Valley, as it braced for a showdown with billionaire activist investor Carl Icahn, who is mounting a proxy fight for control of the company.