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Thursday: Wall Street on TARP, Jobless and Sovereign Watch

Thursday will be a big day for stock offerings as Citigroup ramps up efforts to issue billions in new stock and AOL trades on its own once again.

AP

CNBC's Maria Bartiromo reports that Citigroup is planning to try to pay back the government's Troubled Asset Relief Program by raising as much as $20 billion in equity. The deal could come as soon as Thursday.

Citigroup's possible offer would follow Bank of America's major $19 billion capital raise last week. Bank of America said Wednesday it fully repaid the $45 billion in TARP funds it took from the government during the darkest days of the financial crisis. Citigroup shares weakened on concerns about dilution.

"Anytime there's a belief we're not on life support any more is good for the market, and if these major cornerstones of the American economy can stand on their own again, that has to be a positive," said Peter McCorry, a trader with Keefe Bruyette.

Stocks traded quietly most of Wednesday before closing higher. The Dow was up 51 at 10,337, and the S&P 500 was up 4 at 1095. The dollar was weaker, and energy and metals traded higher, along with stocks. Bonds moved lower. The best performing stock sector was materials, up 1.3 percent and the worst was consumer discretionary, down 0.2 percent.

Thursday's data includes closely watched weekly jobless claims and international trade, both at 8:30 a.m. Treasury Secretary Tim Geithner talks TARP at a Congressional Oversight Panel hearing at 10 a.m.

Getting Technical

Scott Redler, a technical analyst with T3Live.com, said Wednesday was an important day technically for a market that has been seesawing with the dollar's every move. He said the market may be breaking a trend in which financial stocks have been holding back the broader market.

"The 1085 level on the S and P held once again, which keeps the market in the upper channel of its range," he said. "We had three false breakouts above 1115 and now there's been no breakdowns. The market seems like it's going to be range bound until year end with different sectors taking the lead."

"What changed today was for the first time since early October, Goldman Sachs led the market higher, even with news out there that money raises in the banking sector are going to result in more shares," said Redler.

Second Time Around

Another big event for stocks will be the relaunch of AOL, spun off from Time Warner and set to trade on its own again starting Thursday morning. The first time AOL was IPOd was in 1992, and its ill-fated deal to merge with Time Warner was struck in the year 2000.

Long Bond

Thursday's auction of $13 billion in 30-year bonds follows the disappointing auction of $21 billion in 10-year notes. ''It was definitely the weaker one of the year," said George Goncalves, Treasury strategist at Cantor Fitzgerald. "The bid to cover was still strong."

Sovereign debt worries continue to ripple through markets and had been sending buyers into Treasurys earlier in the week. Wednesday's sovereign news du jour was about Spain, which was put on negative outlook by Standard and Poor's though its rating was left unchanged.

Markets globally were nervous Tuesday after Fitch downgraded Greece's debt. "Greece is definitely the worst," said Win Thin, currency strategist with Brown Brothers Harriman. "Italy, Spain, Ireland are all kind of weakening but they're not going to fall off the cliff in terms of credit worthiness as much as Greece."

Thin said the markets have already been pricing in some of the concern ahead of the rating actions. "These downgrades have long been overdue. We've been calling for these downgrades since the summer. The agencies have an impeccable sense of timing. They know when to cause the maximum turmoil in terms of their announcements...The markets had already been nervous about Dubai," he said.

Goncalves said the sovereign debt problems should continue to send buyers into the Treasury market. "Collectively, this is all going to add up to something, and I think this is why I feel you have to pick the prettiest at a beauty pageant of all the ugly things out there. We realize the sovereign bond markets have taken on the problems of the private sector," said Goncalves.

Closer to Home

Earlier in the week, Moody's downgraded $24 billion in Illinois general obligation and other bonds to A2 from A1, giving it the second lowest U.S. state rating from Moody's after California.

Peter Delahunt, senior vice president at Raymond James, said Illinois is but one of a handful of "challenged" states that he is watching. "One of the reasons it's challenged is it has a lot of unfunded pension obligations and other post employment benefit obligations," he said.

"I think there's concern to a certain extent about Illinois, Michigan, Puerto Rico, California and New Jersey. There are many different perspectives on this but the fact is there is a protection on the bonds to the extent that in many cases, states are obligated to pay the debt service on their bonds before they stop paying other expenses... That usually carries enough cache to provide bond holders with a sense of security that no state is going to opt to open up their prisons and not pay their police, they'll find a way," he said.

(Click here for Delahunt's chart on the five most problematic issuers.)

"The budget gap as a percentage of their budget is most onerous in California and Illinois. If you look at the debt service that they have to put out annually as a percent of all expenditures it's highest in Illinois," said Delahunt.

"There's a threshold though on how much you can tax people. it's not like a corporation where they can shut the door and shut down the facility," Delahunt said.

Delahunt, like Thin, said the credit rating agencies have been slow to act and have been behind the market. "It's obvious that the rating agencies made a big mistake in regard to mortgage-backed securities. In that scenario, it was difficult to know what was really behind a lot of those mortgages...People will clamor that we don't get full disclosure in the municipal securities world, but in big state names they have all the information they need."

— Questions? Comments? marketinsider@cnbc.

  • 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 Senior Commodities Correspondent and 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.