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Monday, July 12, 2010

Indications: U.S. stocks set to drop ahead of Alcoa results

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By Polya Lesova, MarketWatch

FRANKFURT (MarketWatch) -- Stocks on Wall Street looked set to open lower Monday following their best week in nearly a year, as investors exercised caution ahead of the kick-off of earnings season by aluminium giant Alcoa Inc.

S&P 500 futures fell 6 points to 1,066.50 and Nasdaq 100 futures dropped 8.50 points to 1,803. Futures on the Dow Jones Industrial Average declined 47 points to 10,085.

U.S. equities gained on Friday, buoyed by optimism about the upcoming earnings season. The Dow /quotes/comstock/10w!i:dji/delayed (DJIA 10,198, +59.04, +0.58%) rose 5.3% last week, posting its biggest weekly gain in nearly a year.

No major economic data is scheduled for release Monday. After the stock market closes, Alcoa /quotes/comstock/13*!aa/quotes/nls/aa (AA 10.94, +0.22, +2.05%) is expected to report second-quarter earnings of 19 cents per share, according to analysts polled by Thomson Reuters.

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"We are all waiting for Alcoa earnings. We have all the sovereign debt issues in Europe pretty much priced in," said Christian Tegllund Blaabjerg, chief equity strategist at Saxo Bank. "There is no news out today that can spur the market, so it's all about earnings."

"Earnings expectations have been revised lower for the past month and so I think we're going to get a massive surprise to the upside," Blaabjerg said.

He expects particularly strong results from financial-sector firms, such as J.P. Morgan Chase & Co. /quotes/comstock/13*!jpm/quotes/nls/jpm (JPM 38.85, +0.69, +1.81%) , which reports on Thursday.

Transportation company CSX Corp. /quotes/comstock/13*!csx/quotes/nls/csx (CSX 51.76, +1.00, +1.97%) and chip-equipment maker Novellus Systems Inc. /quotes/comstock/15*!nvls/quotes/nls/nvls (NVLS 26.49, +0.15, +0.57%) will also report quarterly results late Monday.

Oil major Chevron Corp. /quotes/comstock/13*!cvx/quotes/nls/cvx (CVX 71.84, +1.43, +2.03%) will issue an interim second-quarter update.

BP shares rally

In London trading, shares of BP PLC /quotes/comstock/13*!bp/quotes/nls/bp (BP 34.05, +0.31, +0.92%) /quotes/comstock/23s!a:bp. (UK:BP. 390.45, +25.65, +7.03%) rallied 7% following media speculation that the whole firm or some of its assets may be sold off.

The Wall Street Journal reported that BP was in talks to sell assets to Houston-based Apache Corp. /quotes/comstock/13*!apa/quotes/nls/apa (APA 87.88, +0.48, +0.55%) in a deal that could be worth as much as $10 billion. The Sunday Times said Exxon Mobil /quotes/comstock/13*!xom/quotes/nls/xom (XOM 58.78, -0.03, -0.05%) and another U.S. oil firm have asked the U.S. government whether they could bid for BP. Meanwhile, BP said Monday that the cost of the response to the oil spill in the Gulf of Mexico has climbed to $3.5 billion. Read more on BP.

"BP has enough money in its operating cash flow to pay for all the unfortunate things that are going on in the U.S. There is no reason for BP to go into panic mode and start selling assets," Blaabjerg said.

"Just look at the company: it's rock solid, it's making a lot of money," he said. "I think BP is still a solid buy."

In the financial sector, Sweden's SEB /quotes/comstock/22u!seb-a (SE:SEBA 45.46, -0.47, -1.02%) announced it was selling its German retail banking business to Spain's Banco Santander SA /quotes/comstock/13*!std/quotes/nls/std (STD 12.74, +0.05, +0.39%) /quotes/comstock/06x!csan (ES:SAN 9.84, -0.13, -1.27%) for €555 million ($699 million).

Most Asian stock markets finished with gains, but Japanese equities dropped after the nation's ruling coalition lost more seats than expected in Sunday's upper-house elections. Tokyo's Nikkei Stock Average ended down 0.4%. Read more on Japan's stocks.

In Europe, stocks posted modest losses, with the Stoxx Europe 600 index /quotes/comstock/22c!sxxp (ST:SXXP 249.84, -0.25, -0.10%) trading down 0.2%.

The dollar rose against all of its major rivals; the dollar index /quotes/comstock/11j!i:dxy0 (DXY 84.35, +0.40, +0.48%) gained 0.5% to 84.405. The euro /quotes/comstock/21o!x:seurusd (CUR_EURUSD 1.2565, -0.0074, -0.5855%) fell 0.6% to $1.2565 and sterling dropped 0.7% to $1.4952.

In the commodities markets, August crude-oil futures declined 72 cents to $75.38 a barrel in electronic trading on the New York Mercantile Exchange.

Gold futures also dropped, down $5.20 to $1,204.60 an ounce.

Polya Lesova is a reporter for MarketWatch, based in Frankfurt.

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