Futures lower on rising oil, rate worries

By Kristina Cooke

Futures pointed to a lower open on Thursday, as higher oil prices and rising bond yields fueled concerns about the outlook for interest rates and corporate profits, a day after the Standard & Poor's 500's biggest drop in two weeks.

Concerns that higher borrowing costs could cut into corporate profits and slow the pace of takeovers fanned Wednesday's market drop. The yield on the 10-year Treasury note was up at 5.16 percent from the 5.13 percent seen late on Wednesday.

London benchmark Brent crude was up 0.8 percent at $70.96 a barrel after dropping $1.42 on Wednesday.

While the rising oil prices may help shares of energy companies such as Exxon Mobil (NYSE:XOM - news), they could fuel worries about consumer spending and inflation.

"The market seems to be worried about one thing and one thing only and that is interest rates," said Peter Cardillo, chief market economist at Avalon Partners in New York.

"Interest rate jitters are being used as a catalyst for this market to correct, and the correction that began several weeks ago is probably not over as long as bond yields continue to rise."

S&P 500 futures were down 3 points, below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract.

Dow Jones industrial average futures were down 17 points while Nasdaq 100 futures were down 3.75 points.

In corporate news, U.S. sunglasses maker Oakley Inc.'s (NYSE:OO - news) stock gained 13.4 percent in Europe, after Italy's Luxottica (LUX.MI) (NYSE:LUX - news), the world's biggest eyewear maker, agreed to buy the company in an all-cash deal worth about $2.1 billion.

Shares of Dow Jones & Co. Inc. (NYSE:DJ - news) rose 4.15 percent in Europe, after it said late on Wednesday that its board would take over negotiations related to a $5 billion takeover offer from Rupert Murdoch's News Corp. (NYSE:NWSA - news), a move that could bring a quicker resolution to the talks.

Investment banks were expected to remain in the spotlight after falling sharply on Wednesday as Bear Stearns (NYSE:BSC - news) struggled to keep afloat two hedge funds that suffered big losses on securities tied to the subprime mortgage market.

Merrill Lynch & Co. Inc. (NYSE:MER - news), a main lender to the funds, sold off assets seized from the funds, and three other banks closed out their positions with them.

Bear Stearns' shares were down 2.22 percent in Europe, and Merrill Lynch's stock fell 2.02 percent.

Investors will also be closely watching demand for Blackstone Group's (BG.UL) initial public offering. The flotation on the New York Stock Exchange, worth up to $4.75 billion and underwritten by Morgan Stanley and Citigroup, was set to be priced later on Thursday.

Thursday's U.S. economic data calendar included Weekly jobless data, was due at 8:30 a.m. (1230 GMT); followed by leading indicators for May at 10 a.m. (1400 GMT) and the Philadelphia Fed regional business index at noon (1600 GMT). [via]