U.S. stocks opened slightly higher Wednesday, boosted by a better-than-expected report from Hewlett-Packard. But banks quickly retreated amid renewed worries about fallout from the mortgage crunch.
Tech leader Hewlett-Packard reported fiscal third-quarter earnings after the bell Tuesday that beat analyst estimates, helped by strong international sales of laptops and printers. The company also issued a fourth-quarter estimate that surpassed the consensus forecast.
Analysts said it was a good report but remained concerned about the impact of a stronger dollar on HP's outlook. In the last quarter, 70 percent of HP's revenue came from overseas.
Strength in the dollar also helped buoy the broader market.
"The dollar stopped going down and there are foreigners all over the place who have been eyeing American assets for a long time," Daniel Frishberg, CEO and founder of Laffter, Frishberg, Wallace, told "Worldwide Exchange," adding that as the dollar climbs, pent-up demand for the assets will be released.
The greenback made firm gains against the euro, yen and pound as the prospect for rate cuts in the currencies' respective countries increased due to slowing economic activity. Oil prices edged slightly higher in early trading with investors looking toward US inventory data released at around 10.30 am New York time.
Investors were also cheered up by a sharp rise in Chinese stocks on the back of speculation that the authorities will offer a stimulus package to boost the slowing economy and aid the stock and property markets.
Meanwhile, the outlook for the financial sector remained bleak as Goldman Sachs slashed its earnings outlooks for five major banks, saying "Tides are not changing; more writedowns and asset sales to come." The banks were Citigroup, JPMorgan Chase, Morgan Stanley, Merrill Lynch and Lehman Brothers, .
Lehman finds itself in hot pursuit once again. Yesterday, the IMF's chief economist, Kenneth Rogoff, said a large U.S. bank will fail in the next few months. Today, Ron Ianieri, chief option strategist at the Options University, told CNBC that Lehman is the most likely to fail.
Lehman is said to be mulling a sale of its entire investment-management unitas the fate of CEO Dick Fuld -- and the entire firm -- hangs in the balance. CNBC's Jim Cramer came out swinging at Fuldon Tuesday, saying selling the unit is a bad idea and that Fuld needs to wake up and make a move to save the firm before it's too late.
In other news, the SEC plans to propose a new short-selling rule in the next few weeks which would be broader than an emergency order covering just 19 financial stocks which ended last week, Reuters reported.
On the earnings front, BJ's Wholesale beat expectations by a penny as shoppers headed to the discount warehouse for food and fuel. The company also raised its full-year profit forecast.
TUESDAY: Earnings from HP and Analog Devices after the bell
WEDNESDAY: Weekly mortgage applications; crude inventories; Videogame conference in Leipzig, Germany; Earnings from BJ's Wholesale and Limited Brands
THURSDAY: Jobless claims; leading indicators; Philly Fed survey; GM announces investment plans for Ohio plant; Earnings from Gamestop, Heinz, Hormel, Aeropostale, Gap and Intuit
FRIDAY: Fed conference in Jackson Hole begins; Earnings from WPP, AnnTaylor
WATCHERS: Obama is expected to select a running mate this week ahead of the convention
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