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Market Mood Sours Amid Earnings Jitters

Stocks traded mixed Tuesday as not-horrible earnings failed to quell market jitters about earnings.

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

The market was also 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.

However, 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."

(Who missed and who beat? Click here for a list of earnings surprises.)

And a profit warning from the chip sector rattled some cages ahead of earnings from Intel and Washington Mutual , due out after the closing bell.

Avnet , which supplies components to a broad range of chip makers, said its earnings would fall short due to lower rebates and higher expenses.

Even technology-outsourcing firms have begun to feel the pinch. 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.

In economic news, March producer prices jumped 1.1 percent, 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.

Shares of both Delta and Northwest fell sharply -- pulled down the rest of the airline sector -- amid concerns about jet fuel, which has eclipsed labor as airlines' biggest expense. Morgan Stanley's airline analyst added to the tail winds, dispatching a note that advised investors to "look for opportunities to become sellers once consolidation momentum has run its course because airline mergers are inherently risky."

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.

Shares of Crocs tumbled 40 percent after the shoe maker drastically cut its outlook, prompting speculation that the popular rubber footwear may have jumped the shark. JPMorgan analyst Robert Samuels said in a note to clients that the guidance cut "frankly, was stunning."

Traders seemed to sweep all the footwear trends out the door as shares of Heelys , which makes sneakers with wheels in them, and Deckers Outdoor Corp. , maker of Ugg boots, also declined.

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.