Stocks were heading for a higher open on Wednesday on optimism about renewed deal activity and speculation the Federal Reserve might cut its benchmark interest rate to calm turbulent markets.
Investors are increasingly convinced the Fed, the U.S. central bank, will cut rates sooner rather than later after it surprised markets on Friday by cutting the rate at which it lends to banks. Fallout from problems in the risky U.S. subprime mortgage sector have led to sharp declines in world stocks over the past month.
Shares of E*Trade Financial rose 6 percent to $16.50 in electronic trade on a Wall Street Journal report that the online brokerage is in merger talks with peer TD Ameritrade Holding Corp. TD Ameritrade climbed 8.5 percent to $17.74 before the bell.
Dubai World, the investment holding firm of the Dubai government, will take a 9.5 percent stake in MGM Mirage and 50 percent of the casino operator's CityCenter development project for $5 billion under a deal reported in The Wall Street Journal. MGM shares gained 11.7 percent before the bell.
Investors had feared deteriorating credit conditions would hamper merger and acquisition activity.
There is an ongoing feeling that the FOMC may cut rates between now and September that is adding confidence to equity investors that credit tightness won't become a credit crunch, Arthur Hogan, chief market analyst at Jeffries & Co. in Boston, referring to the Fed's rate-setting Open Market Committee.
And the MGM deal has got some excitement going in the deal space overall. Add to that no new news of another shoe dropping in the credit market and the markets are celebrating.
S&P 500 futures were up 9.10 points, above fair value, a formula to evaluate pricing taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures jumped 63 points, and Nasdaq 100 (NDc1: Quote, Profile, Research) futures climbed 6.25 points.
In other deal news, Tribune Co. shareholders overwhelming approved a proposed $8.2 billion buyout led by real estate tycoon Sam Zell late Tuesday, giving a boost to the publisher. Shares in the company rose 4.2 percent in Europe.
In the latest news out of the battered housing sector, U.S. luxury home builder Toll Brothers said its quarterly profit fell sharply amid tightening credit terms that look likely to shrink the number of potential home buyers.
Net income fell to 16 cents per share. Analysts had on average expected 5 cents per share, though it was not immediately clear whether that outlook was directly comparable with net income. Toll also said it would not give an outlook for the quarter, citing uncertain market conditions.
On Tuesday, the S&P 500 and Nasdaq rose after a signal that the Fed might soon cut its benchmark interest rate muted persistent concerns about withering credit markets.
Standard & Poor's 500 Index inched up 0.11 percent and the Nasdaq Composite Index gained 0.51 percent, while the Dow Jones industrial average fell 0.23 percent.