Syria hangs over markets, as traders watch out for Fed

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Fed speak is back in the spotlight Thursday, as traders keep an eye on the Middle East and rising oil prices.

St. Louis Fed President James Bullard speaks at 8:50 a.m. ET and Richmond Fed President Jeffrey Lacker speaks at 2 p.m. Traders are also likely to be focused at 8:30 a.m. on the second look at second quarter GDP (gross domestic product), expected to be revised higher to 2.2 percent from 1.7 percent growth. There is also unemployment claims data, with weekly jobless claims expected at 332,000, down slightly from last week's 336,000.

The double edge of the oil-price sword was a positive for stocks Wednesday, with a 1.8 percent gain in the energy sector helping to pull the market higher. The Dow was up 48 at 14,824, and the S&P 500 was up 4 at 1634. Nasdaq gained 15 points to 3593. West Texas Intermediate crude, meanwhile, rose another $1.09 to a near two-year high of $110.10 a barrel, as the U.S. appeared to be moving ahead to forge a coalition to strike Syria.

(Read more: Stock market rebounds as big oil bounces back)

Bank of America Merrill Lynch head global technical strategist McNeil Curry said in a note this week that if WTI oil breaks above $110.55, a long-term bull trend would resume in oil and $122.84 is then the level to watch with an eventual push toward the 2008 high of $146.37. Some analysts say oil could spike to its 2008 high if the situation in Syria results in the disruption of oil supplies, though Syria itself is not an exporter or on any main oil routes.

"If oil prices spike on the Syria attack, and surge above $120, the next logical upside target is going to be the 2008 high of $147, which could easily be taken out," said John Kilduff of Again Capital. "It's the retaliation to the retaliation that we have to be worried about."

While the odds are not viewed as high, analysts say they are concerned Syria or its allies could disrupt supplies if they successfully hit oil facilities in the Middle East, such as in Iraq, where a northern pipeline to Turkey is already frequently attacked.

(Read more: Stephen Roach warns of global economic crisis)

Some stock traders were less concerned about the possible strike on Syria Wednesday than they were earlier in the week when U.S. Secretary of State John Kerry said the U.S. believes Syria used chemical weapons on its people and there must be accountability. "If this happens, it's from the sea. This is going to be like a surgical strike, and they've already given them notice," said one trader. "They'll bomb something and move out."

The Treasury auctions $29 billion in 7-year notes at 1 p.m. Thursday, after an auction of 5-year notes saw relatively weak demand Wednesday.

"The 7-year auction should go okay," said David Ader, chief Treasury strategist at CRT Capital. "It's the end of the month. You could see people coming in to buy a little bit…It's also the end of the summer, a long weekend. It's an unusual month and it could have an exaggerated impact." The Labor Day holiday is Monday so traders will be careful to position themselves going into the long weekend.

(Read more: 'Broken market'? Why there's more trouble ahead)

Ader said the market will be watching Bullard and Lacker as it has been watching Fed speakers for the past several months for any clues on the Fed's decision to taper its bond buying program. The Fed meets Sept. 17, and Fed followers are split on whether the Fed will view economic data as strong enough to start pulling back from the program.

The tensions around Syria could also be a positive for the bond market, driving a flight-to-safety trade.

"On the margin, it could encourage buying. At the very least, it's going to discourage selling," he said.

—By CNBC's Patti Domm. Follow here on Twitter @pattidomm.