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Stocks Are Mixed; Merck Drags on Dow

Stocks opened mixed Monday as the market was on track for its worst quarter in 5 1/2 years and investors looked for insight into the second quarter.

Today is the last day of the quarter and analysts now expect earnings for S&P 500 companies will be down 8.1 percentfor the quarter, according to data compiled by Reuters. That's a far cry from the 4.7 percent growth expected at the beginning of the quarter and the 5.5 percent decline projected as recently as last week.

Earnings for financial companies are expected to have dropped 49 percent during the quarter.

"All in all, it's been a terrible quarter," said Peter Cardillo, chief market economist at Avalon Partners in New York. "I kind of expect to close this quarter on a very sour note. We have continued uncertainties where the whole subprime market is going to end up. Will the consumer really send the economy for a loop? Those are still unanswered questions."

As for the second quarter, there have been 242 negative outlooks from companies and just 169 positive forecasts.

"It strikes me that the big securities firms are just in a dramatically different business than are the commercial banks," Donald Straszheim, vice chairman of Roth Capital Partners, told CNBC. He suggests that "investors should be more focused overseas -– that’s where the growth is going to be, not in the U.S."

So far, the Dow Jones Industrial Average is down nearly 8 percent for the quarter, the S&P 500 is off more than 10 percent and the Nasdaq, nearly 15 percent.

But overseas, stocks have taken an even worse beating. Chinese stocks are off a whopping 32 percent since the start of the year, India has fallen 19 percent and Japan and Hong Kong are off more than 16 percent, according to a report in today's Wall Street Journal. In Europe, the German market has shed nearly 19 percent and French stocks are off more than 16 percent.

Equity capital continued to flow out of the U.S. for a seventh straight week, according to a report from UBS, but the pace slowed from the prevoius week. A net $820 million left the U.S. last week, compared with $2.2 billion a week a earlier.

The US Treasury announced a regulatory overhaul that would give broad new powers to the Federal Reservein the biggest overhaul of financial regulation since the Great Depression. The government suggests that the plan might have been able to prevent the kind of crisis that is currently ripping through the financial markets. The primary way that would happen would be stricter requirements for disclosure, which might have brought some of the current problems to light much sooner.

The market had little reaction to the release of reform details as traders widely believe it will take a long time for these reforms to go into effect -- probably after a new president is elected -- and their more pressing concern is the second quarter.

"It's a long-expected requirement for the complex global financial markets. But there are quite a number of hurdles to cross on the way to the implementation," Bob McDowall, from Towergroup, told CNBC.

Merck tumbled more than 16 percent, its worst day since the 2004 recall of Vioxx, after an expert panel said the company's joint cholesterol drug with

Schering Plough, Vytorin, showed no signs of working betterthan a cheaper generic statin.

The development came as AstraZeneca halted tests on its own cholesterol drug, Crestor, but for the opposite reason -- clinical tests had shown the drug far superior to a placebo in treating patients. AstraZeneca shares gained 2.6 percent premarket.

There were more bad news from the financial sector, with investment bank Lehman Brothers saying it had filed a lawsuit to get back $352 million from Japanese trading house Marubeni that was lost in a finance scam.

In other corporate news, U.S. spirits maker Fortune Brands said on Monday it would begin repurchasing its own shares after losing out in an auction for Absolut vodka maker Vin & Sprit to French rival Pernod Ricard.

Shares of IAC/InterActiveCorp jumped after a court last week ruled in favor of the company in a dispute with a key shareholder. The ruling paves the way for the company to be split into five separate companies.

Philip Morris rose on its first day of trading since being spun off from Altria .

In economic news, the Chicago purchasing managers' index, a gauge of Midwest manufacturing activity, rose to 48.2 in March from 44.5 in February. The reading was better than the 46.7 analysts polled by Reuters had exected, but still pointed to contraction. A reading above 50 would indicate expansion.

The Milwaukee PMI fell, which, along with a weak report from the Philadelphia Fed, point to a slight drop in the national reading on manufacturing from the Institute from Supply Management, Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a note. Shepherdson expects the ISM reading, due out on Tuesday at 10 a.m., to slide to 47 from 48.3.

Still, some economists point out that consumer spending is a huge part of GDP and, unlike consumer sentiment, it's not in recession mode yet.

"The fact is that real consumer spending is still rising at a 1% rate in the first quarter," wrote Robert Brusca of FAO Economics. "I doubt that, without a drop in consumer spending, recession is in the cards."

Still, Brusca says, "weak employment can undermine consumer spending if it is weak enough."

A clearer picture will emerge after the release of the March jobs report, due out before the bell on Friday. The consensus is for nonfarm payrolls to have dropped by 60,000, following a 63,000 decline in February, and for the unemployment rate to tick up to 5 percent from 4.8 precent.

-- Reuters contributed to this article.

This Week:

MONDAY: Fed's Yellen speaks; End of first quarter
TUESDAY: Auto sales; ISM manufacturing index; construction spending
WEDNESDAY: MBA applications; factory orders; oil inventories; Bernanke testifies; Earnings from Monsanto, Best Buy, Research In Motion
THURSDAY:Jobless claims; ISM services index; Fed's Yellen speaks
FRIDAY: Jobs report

Send comments to cindy.perman@nbcuni.com.

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