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Tuesday, January 12, 2010

Indications: Alcoa miss sends U.S. stock futures lower

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By Steve Goldstein & Kate Gibson, MarketWatch

NEW YORK (MarketWatch) -- Alcoa Inc.'s disappointing kickoff of the fourth-quarter earnings season sent U.S. stock futures lower on Tuesday.

S&P 500 futures fell 8 points to 1,134.5 and Nasdaq 100 futures fell 11.75 points to 1,871.75. Futures on the Dow Jones Industrial Average dropped 68 points to 10,536.

Stock futures maintained their losses after the government reported the U.S. trade deficit widened sharply in November. Read about rising demand in the U.S. for foreign goods.

But Alcoa /quotes/comstock/13*!aa/quotes/nls/aa (AA 15.54, -1.91, -10.95%) fell more than 7.4% in premarket trade after the aluminum producer and Dow component reported a $277 million loss that, excluding charges, was worse than analysts had anticipated. CFO Charles McLane Jr. said on a conference call that the company willingly sacrificed earnings to preserve cash.

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"My point is that we had to pull back capacity at many locations to meet the decreased demand," McLane said. "And the way we were going to manage our cash is to take all of the variable cash costs out as quick as possible. When you do that, you've got all your fixed costs and it's going to be over a lower volume and it's going to hurt profitability."

But analysts said Alcoa is facing the impact of currency turbulence and growing energy costs, in addition to the possibility that aluminum prices could fall.

A move by the People's Bank of China to lift the reserve requirements for banks by a half point also made an impact.

"To the extent the Chinese have been major suppliers of global liquidity, aggressive tightening is going to be very detrimental to risk assets," said Jamie Dannhauser, economist at Lombard Street Research.

Elsewhere, shares of KB Home /quotes/comstock/13*!kbh/quotes/nls/kbh (KBH 15.57, -0.81, -4.95%) fell nearly 3% after the home builder said it swung to a fourth-quarter profit but revenue dropped nearly 30% from the year-ago period.

Video games publisher Electronic Arts Inc. /quotes/comstock/15*!erts/quotes/nls/erts (ERTS 16.75, -1.52, -8.32%) warned on fiscal 2010 earnings, blaming weakness in Europe as well as a shift toward lower-margin products in Europe. Shares of Electronic Arts fell 8.5% in preopen trading. Europe's top video games retailer, Game Group, separately warned on its annual earnings.

Tiffany & Co. /quotes/comstock/13*!tif/quotes/nls/tif (TIF 46.15, -0.53, -1.14%) , by contrast, upped its earnings view after better holiday sales than forecast.

Supervalu /quotes/comstock/13*!svu/quotes/nls/svu (SVU 13.56, +0.64, +4.95%) rallied 7.4% in pre-market trade after reporting a stronger-than-forecast fiscal third quarter earnings. KB Home /quotes/comstock/13*!kbh/quotes/nls/kbh (KBH 15.57, -0.81, -4.95%) slipped 1% as a tax benefit helped the home builder return to profitability.

Overseas, Infosys Technologies /quotes/comstock/15*!infy/quotes/nls/infy (INFY 57.60, +2.77, +5.05%) led Indian stocks higher on an upbeat profit forecast and the Shanghai Composite rose 1.9% for its third straight rise. The pan-European Dow Jones Stoxx 600 traded 0.9% lower, by contrast, with the metals sector lower on the Alcoa result as well as the PBoC action.

The dollar dipped 0.5% to 91.54 yen, and oil futures lost more than $1 a barrel.

Yields on 10-year Treasury bonds dropped 8 basis points to 3.736%. Yields move in the opposite direction to prices.

U.S. stocks were generally stronger on Monday, with the Dow Jones Industrial Average rising 45 points and the S&P 500 gaining 2 points, while the tech-heavy Nasdaq Composite fell 4 points. Strong Chinese economic data and confidence ahead of earnings season helped buoy stocks.

Steve Goldstein is MarketWatch's London bureau chief. Kate Gibson is a reporter for MarketWatch, based in New York.


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