NEW YORK, Oct 28 - Stocks are expected to climb at Tuesday's open, bolstered for a second day in a row by merger-fueled optimism, but investors were likely to be wary ahead of the Federal Reserve's interest rate decision. R.J. Reynolds Tobacco Holdings added to a recent string of merger news when it announced late Monday it would buy British American Tobacco Plc's U.S. cigarette and tobacco businesses for more than $3 billion in cash and stock. The market rose on Monday after two multibillion-dollar takeover deals boosted investor hopes that business conditions are on the mend. "The mergers are making people a little bit optimistic," said Edgar Peters, chief investment officer at PanAgora Asset Management Inc. "People are are waiting, though, for the Fed statement. We know what they're going to do, which is nothing, but their outlook is something that people pay a lot of attention to."
An encouraging report on durable goods orders further underpinned the market ahead of the open. New orders for long-lasting U.S. manufactured goods were weaker than expected in September, but other areas pointed to robust business spending. Although the peak of the corporate earnings season is now past, investors also have a fresh influx of quarterly scorecards to sort through, including results from Lockheed Martin Corp. Standard & Poor's 500 stock index futures for December were up 4.80 points at 1,035.50, while Nasdaq futures for the same month were up 8.50 points at 1,386. R.J. Reynolds shares surged to $47 in pre-open trading from $43.25 at the close on Monday. The Fed is widely expected to keep interest rates steady when it wraps up its policy-setting meeting around 2:15 p.m. (1915 GMT), but investors will be listening carefully for the central bank's take on the state of the economy. A poll of top Wall Street bond dealers showed 17 out of 20 expected the Fed's next move to be an increase, but not until late next year or even in 2005. Questions have surfaced, however, about how long the Fed will be able to keep its promise to maintain low interest rates given the recent surge in economic activity.
Since June, the central bank has said its main worry is a further drop in inflation even though the risks to economic growth are roughly balanced. Any change in that formulation will be taken as a signal that a rate rise is on the horizon. Ahead of the Fed's decision, reports on durable goods and consumer confidence will garner attention. Orders for durable goods, items designed to last three years or more, rose 0.8 percent in September, the Commerce Department said, below analyst forecasts for a 1.4 percent increase. That followed a large revision in August, with orders revised to a decline of 0.1 percent from a previously reported drop of 1.1 percent. Excluding defense, demand for durable goods rose 2.6 percent. Orders for non-defense capital goods rose 3.4 percent and those orders excluding aircraft, which many economists look to as a sign of business investment plans, climbed 3.9 percent. The Conference Board's consumer confidence index for October, due at 10 a.m. (1500 GMT), is expected to show a rise to 79.5 from 76.8 in the prior month. In the latest earnings news, defense contractor Lockheed Martin said its third-quarter earnings fell 25 percent, after a charge related to an early retirement of debt, but sales rose to a record. R.J. Reynolds on Tuesday reported a hefty quarterly loss as the maker of Camel and other cigarettes took charges to cut jobs in a bid to trim costs. In overseas trading, Tokyo stocks closed higher for a third day on Tuesday, with the Nikkei average <.N225> up 1 percent at 10,561.01. European shares were also firmer, with the FTSE Eurotop 300 index <.FTEU3> was up 0.9 percent at 911 points.//