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Stocks Hold, But Merrill Story Stirs Street

Ahead of the Fed, stocks are holding onto higher ground as oil breaks another record and the dollar flounders. But the high interest story on Wall Street is the behind-the-scenes intrigue at Merrill Lynchas its board struggles to orchestrate the departure and replacement of Merrill Lynch CEO Stan O'Neal.

European markets are higher and Asia's markets closed higher. The U.S. dollar hit yet another low overnight against a basket of currenices and oil, gold and other commodities move higher. U.S. stocks are firming and a lot of the talk is about the Fed's meeting, which starts tomorrow and ends in a rate decision Wednesday afternoon. Traders widely expect a 1/4 rate cut.

Merrill stock is firming on the reports of O'Neal's departure, after running up Friday on takeover talk. CNBC's Charlie Gasparino broke the story that Merrill's board opted to oust O'Neal. Gasparino reports this morning that BlackRock CEO Larry Fink is the frontrunner to replace him.

O'Neal's fall from power was rapid and ugly. He is the highest profile casualty of the subprime debt tsunami. Merrill took an unprecedented writedown of more than $8 billion related to bad debt, when it reported earnings last week and it is widely expected to write down several billion more.

"Merrill isn't saying anything. This is odd," says Gasparino on "Squawk Box." Gasparino said sources told him that O'Neal was offered the opportunity to stay on as interim ceo and had considered the offer, but was unlikely going to accept it. Merrill has so far not commented on the reports.

"The rumor right now is that Bob McCann, the head of the private client group, a long-time Merrill Lynch guy, and Greg Fleming , the head investment banker..that they are somehow going to split the CEO job on an interim basis, and they're going to have a search for a ceo," said Gasparino.

Also on "Squawk Box," Punk Ziegel analyst Richard Bove threw cold water on those takeover rumors. "Nobody will buy it. Basically it's too big," he said. The catalyst for O'Neal's ousting was his reported, unauthorized discussion with Wachovia about a merger. Wachovia was uninterested in the combination but the report sparked speculation that Merrill is in play.

The drama at Merrill is likely to swirl around other investment banks as Wall Street grapples with the changing face of its business and the rubble left behind from the excesses of easy credit (ie. big writedowns and a still constricted credit market). Bear Stearns CEO Jimmy Cayne has been under fire, as has Citigroup CEO Chuck Prince.

More Mortgage Pain
Wall Street rival, Swiss bank UBS , meanwhile, warned that it may have to take further charges from its exposure to the U.S. housing and mortgage markets.

Oil Pumping
Oil rose above $93 per barrel overnight as Mexico shuts down a fifth of its production. Oil is below that level now but is firming, in parallel to the weakening dollar. Mexico's Pemex shut down about 600,000 barrels of output due to bad weather. Pemex expects to resume output in two days.

Around the World
U.S. Treasury Secretary Hank Paulson, Goldman Sachs CEO Lloyd Blankfein, Cisco CEO John Chambers and Dell CEO Michael Dell all are in India for a Fortune business conference on global business issues. Meanwhile, Charles Schwab and Steve Wynn will present at Impact 2007 financial forum in Las Vegas. Bono is also on the agenda.

World Champs
Lesson for Wall Street. Sometimes the long shots win, and win again. For the second time in four years, the Red Sox are World Series champs, after beating the Colorado Rockies.

Questions? Comments? marketinsider@cnbc.com

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC's Senior Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.