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Stocks Trade Mixed as Earnings Improve

Stocks were mixed Tuesday as investors cheered a handful of encouraging earnings report but a profit warning from the chip sector put a damper on the mood.

After a trio of misses -- from General Electric , Alcoa and Wachovia -- kicked off this earnings season, Tuesday's reports were a welcome reprieve.

Dow component Johnson & Johnson reported its earnings jumped 40 percent, beating expectations slightly, amid aggressive cost-cutting measures. The company also raised its 2008 outlook.

Blue chips get all the attention, but the market was buzzing with news that several smaller financial firms actually hit their earnings targets, including investment-services firms State Street and Northern Trust , and US Bancorp , which operates a chain of bank branches.

State Street shares skidded after the company's finance chief said the company faces "two unrealized losses" -- the first of which is $3.2 billion -- and that "the things that gave us the strength this quarter are the things that we are worried about disappearing."

Reports are due out after the closing bell from Intel and Washington Mutual .

Intel rose but most chips sunk, dragging on the Nasdaq, after a profit warning from electronics distributor Avnet . The company, which supplies components to a broad range of chip makers, said its earnings would fall short due to lower rebates and higher expenses.

Meanwhile, producer prices jumped 1.1 percentin March, the second-highest reading in the past 33 years. But once you strip out volatile food and energy costs, core PPI rose a tame 0.2 percent, as expected.

The New York Federal Reserve's Empire State manufacturing survey rose to 0.63 in April, an improvement from the negative 22.23 reading in March. Economists had expected a decline of 17.50, according to a Reuters poll.

After long, drawn-out talks, Delta and Northwestreached an agreement to mergein a deal valued at $3 billion that would create the world's largest airline. Delta shares slipped 6 percent and Northwest ticked up 1 percent in early trading.

Speculation is already swirling that this is the beginning of a consolidation trend in the industry and that Continental Airlines and United Airlines may be next. The pair have already laid most of the groundwork for a merger and could have a deal "pretty quickly,"Reuters reported.

In the drug industry, AstraZeneca settled U.S. patent litigation against India's Ranbaxy Laboratories over its top-selling drug, ulcer treatment Nexium, securing future sales and sending its shares soaring.

Global financial turmoil has also begun to seep into technology outsourcing. India's Infosys Technologies missed market forecasts with a 9.6 percent rise in quarterly profit and sounded a cautious note for its short-term outlook.

This Week:

TUESDAY: Intel, WaMu earnings after the closing bell
WEDNESDAY: BlackRock, Coke, JPMorgan, Wells Fargo, eBay, IBM earnings; mortgage applications; housing starts; CPI; industrial production; crude inventories; Beige Book; Fed's Yellen, Plosser speak
THURSDAY: Merrill Lynch, Nokia, Pfizer, Capital One, Google earnings; jobless claims; Philly Fed report; leading indicators; Fed's Kohn, Fisher speak
FRIDAY: Caterpillar, Citigroup, Honeywell, Xerox earnings; Fed's Lacker, Rosengren speak

Send comments to cindy.perman@nbcuni.com.