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Futures Fall Despite Upbeat Jobs News  

U.S. stock index futures turned higher after initially slipping as tensions in the Middle Eastand oil prices hitting above $100 a barrel continued toweigh on stocks ahead of more Congressional testimony from Federal Reserve Chairman Ben Bernanke.

U.S. private employers added 217,000 jobs in February, beating analysts' expectations, according to ADP Employer Services, a payrolls processor, and Macroeconomic Advisers. In January, private employers added 189,000 jobs, revised from 187,000.

Economists expect the government's nonfarm payrolls report on Friday will show an overall rise of 185,000, with a 190,000 gain in private payrolls.

Concerns over escalating tensions in the Middle East overshadowed strong manufacturing data on Tuesday and sparked a selloff.

Worries that unrest is spreading, particularly to Saudi Arabia, rattled investors’ nerves. On Tuesday, a report that Iran clamped down on anti-government protesters helped send oil higher in morning trading. Worries about a report, later denied, that Saudi tanks had entered Bahrain also shook global stock markets.

“Remember that this is all about perception … and any perception that there is going to be supply disruption from Saudi Arabia will have an impact on oil prices,” Mohammed Apabhai, head of Asia Pacific trading at Citi told CNBC.

Oil also received a boost after industry data showed a surprise fall in U.S. crude inventories on lower imports. Weekly oil inventories are due out at 10:30 a.m.

Some traders also were worried that the Fed may be "quietly" limiting its quantitative easing program of stimulating the economy through bond purchases. On Tuesday, the Fed bought only $1.8 billion, "about $5 billion less than what we've seen with QE2," said Todd Schoenberger, managing director at LandColt Trading, referring to the second round of quantitative easing.

"Remember—this market is being powered by Fed accomodation," Schoenberger said. "Positive earnings reports are the gravy on top, but the real octane comes from liquidity injections."

In other economic news, the Fed’s beige book, released at 2 p.m., will offer further clues on the health of the economy.

New data on applications for home mortgages released before the bell showed applications fell last week and refinance activity dropped.

Bernanke addresses Congress for a second day Wednesday after his testimony on the economy before the Senate Banking Committee Tuesday. He is set to address the House Financial Services Committee at 10 a.m.

Kansas City Federal Reserve President Thomas Hoenig speaks before the Council on Foreign Relations in New York at 8 a.m. and Atlanta Fed President Dennis Lockhart speaks at 2:15 p.m. in Atlanta.

In earnings news, Costco fell slightly despite posting a 16 percent jump in quarterly profit, boosted by strong sales during the holiday season, while BJ's Wholesale was unchanged despite beating expectations.

Office supplies retailer Staples slumped after reporting a lower-than-expected quarterly profitas inclement weather in many of its markets kept shoppers away.

Bernanke said Tuesday that the spike in oil prices was not hurting the economy so far. But sustained rises in oil or other commodity prices could be a threat "both to economic growth and overall price stability," he said.

The Fed Chairman also said the risk of deflation had receded.

Mohammed Apabhai at Citi warned the rise in oil prices risked hurting the recovery and complicated the Fed’s task.

“Higher oil prices make things a lot harder for the Fed…higher oil prices will have an impact on the US economy as we go forward,” Apabhai said.

Rising inflation has stoked fears that central banks will have to raise interest rates, which in turn could dampen growth.

Shanghai, China's most populous city, will raise minimum monthly wages by 14 percent from Aprilto help citizens cope with rising prices, the city said on Wednesday. The Chinese government is encouraging wage hikes as it wants to boost consumer spending and reduce the economy's reliance on exports.

“This rise in the oil price—particularly given it’s on supply issues—is just not good news for sustaining that (recovery) momentum into the second half of the year,” Karen Ward, global economist at HSBC said.

On Tap Next Week:

WEDNESDAY: Oil inventories, Federal Reserve's Beige Book; Atlanta Fed President Lockhart speaks.
THURSDAY: Chain store sales, ECB announcement, Monster employment index, jobless claims, productivity and costs, ISM non-manufacturing index, natural gas inventories, money supply; Minneapolis Fed President Kocherlakota speaks, Atlanta Fed President Lockhart speaks; earnings before-the-bell from Heinz, Kroger; earnings-after-the-bell from Novell.
FRIDAY: Non-farm payrolls report, factory orders; Federal Budget Deadline.

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