After showing a strong initial upward move, stocks have given back some ground over the course of the first hour of trading on Wednesday. The major averages have pulled back well off their best levels of the day, with the Dow moving back near the unchanged line.

The early strength in the markets came as traders reacted positively news that Pulte Homes (PHM) has agreed to acquire rival Centex Corp. (CTX) in a stock-for-stock deal. The deal is valued at $1.3 billion and will create the nation's largest homebuilding company.

Under the terms of the agreement, Centex shareholders will receive 0.975 shares of Pulte common stock for each share of Centex they own. Based on Pulte's closing price on Tuesday, the deal values Centex at $10.50 per share, a 38 percent premium to Centex's closing price.

Additionally, while Bed Bath & Beyond (BBBY) said its fourth quarter profit declined from last year, hurt by worsening economic conditions, the home furnishings retailer's earnings exceeded analysts' expectations as well as its own estimates.

Dow component Alcoa (AA) reported a $497 million net loss for the first quarter, hurt by the impact of the economic downturn on its core industrial and commercial markets as well as an historic decline in aluminum prices.

On the economic front, wholesale inventories fell by much more than economists had been expecting in the month of February, according to a report released by the Commerce Department on Wednesday, although the report also showed an increase in wholesale sales.

The report showed that wholesale inventories fell 1.5 percent in February following a revised decrease of 0.9 percent in January. Economists had expected inventories to fall by 0.6 percent compared to the 0.7 percent decrease originally reported for the previous month.

In other economic news, the Mortgage Bankers Association revealed that its index of mortgage application volume rose 4.7 percent on a seasonally adjusted basis for the week of April 3rd, following a 3 percent rise in the previous week.

The major averages are currently all in positive territory, although the Dow and the S&P 500 are posting only modest gains. The Dow is currently up 6.37 at 7,795.93, the Nasdaq is up 9.54 at 1,571.15 and the S&P 500 is up 0.86 at 816.41.

Sector News

While most of the major sectors moved higher in early trading, the major sector indices are now turning in a mixed performance. Retail stocks are holding onto strong gains, contributing to a 2.4 percent gain by the S&P Retail Index.

Within the retail sector, Bed Bath & Beyond is showing one of the strongest gains, rising 20.2 percent following the release of its quarterly results. With the advance, the stock has reached its best intraday level in over six months.

Networking, computer hardware, and airline stocks also continue to perform well on the day. The Amex Networking Index is up 2.2 percent, while the Amex Computer Hardware Index and Amex Airline Index are both up 1.7 percent.

At the other end of the spectrum, healthcare, banking and brokerage are taking some abuse. The Morgan Stanley Healthcare Provider Index is suffering a loss of 2.6 percent, while the Kbw Bank Index and the Amex Securities Broker/Dealer Index are down 1.3 percent and 1.2 percent, respectively.

Stocks Driven By Analyst Comments

Earlier, JP Morgan upgraded both Goodyear Tire & Rubber (GT) and Cooper Tire (CTB) to Overweight from Neutral. With the upgrade, shares of Goodyear have risen 9.4 percent, driving the stock above recent resistance and to its highest level in just under three months.

The upgrade came as the industry is anticipated to stabilize and maybe even improve in coming quarters. Analysts at JP Morgan also said Goodyear appears to have a decent shot at a capital markets deal to issue convertible bonds.

Additionally, JP Morgan upgraded Western Digital (WDC) to Neutral from Underweight. Analysts attributed the upgrade to the belief that the worst-case scenario for Western Digital has been avoided. Shares of Western Digital are currently up 2.6 percent.

Meanwhile, State Street (STT) is suffering a loss of 4.8 percent after being downgraded to Neutral at Merrill/BofA. Analysts feel wary of the stock as the company faces multiple revenue pressures.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region closed mostly lower on Wednesday following the weakness seen on Wall Street overnight. Japan's benchmark Nikkei 225 Index showed a notable decline, closing down 2.7 percent.

Meanwhile, the major European markets are currently turning in a mixed performance. While the French CAC 40 Index and the German DAX Index are up 0.2 percent and 0.3 percent, respectively, the U.K.'s FTSE 100 Index is suffering a loss of 0.8 percent.

In the bond market, treasuries are showing notable strength, driving the yield on the benchmark 10-year note down 6 basis points to 2.849 percent.

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