NEW YORK (CNN/Money) - A brokerage upgrade of technology heavyweight Cisco Systems could bolster technology stocks at the open Wednesday, but a reshuffle in the Standard & Poor's 500 index may add volatility to the mix.

Early indications point to a higher start for the major indexes.

Merrill Lynch upgraded networker Cisco Systems (CSCO: Research, Estimates) to "strong buy" from "buy," noting that fundamentals are improving and leading indicators are pointing toward a recovery in communications equipment new orders during the second half of 2002. Cisco rose 81 cents to $13.95 before hours.

Merill also raised Extreme Networks (EXTR: Research, Estimates) to "strong buy" from "buy." The stock rose 87 cents to $10.20.

S&P announced late Tuesday that it was removing seven companies based outside the United States from its index and replacing them with seven U.S. issues. The financial information company said the move, to take effect July 19, was being made to make the index a better guide to the performance of U.S. large-capitalization stocks.

Generally, stocks that enter the S&P 500 get an initial pop from the news, since managers of funds based on the index need to buy the shares. If so, that could be good news for holders of the seven companies entering the index: Goldman Sachs (GS: Research, Estimates), United Parcel Service (UPS: Research, Estimates), Principal Financial (PFG: Research, Estimates), Prudential Financial (PRU: Research, Estimates), eBay (EBAY: Research, Estimates), Electronic Arts (ERTS: Research, Estimates) and Sungard Data Systems (SDS: Research, Estimates).

Conversely, the seven non-U.S. stocks coming out could be hurt by the decision. They are Royal Dutch Petroleum (RD: Research, Estimates), Unilever (UN: Research, Estimates), Nortel Networks (NT: Research, Estimates), Alcan (AL: Research, Estimates), Barrick Gold (ABX: Research, Estimates), Placer Dome (PDG: Research, Estimates) and Inco (N: Research, Estimates).

eBay gained $2.95 to $60, while UPS rose $2.76 to $63.50 and Electronic Arts added $2.09 to $62.87 in before-hours trading. Royal Dutch lost $3.39 to $52.50, while Unilever dropped $2.62 to $62.50 in before-hours trading.

"European fund managers are taking this move quite seriously. We estimate that indexers will have an additional $2.8 billion to be redeployed into the S&P 500 index on July 19th. This is huge," said a Merrill Lynch analyst in Frankfurt. "Stocks are likely to react to this news in the early going today (Wednesday). It is a surprise and somewhat shocking move by the S&P, the index provider of the largest and most widely followed benchmark in the world."

Credit Suisse First Boston said Nortel Networks' deletion from the S&P 500 "will place near-term pressure on Nortel shares" as index funds rebalance their portfolios -- selling about 328 million shares -- to reflect the adjustments.

Stocks were sold off Tuesday after Bush's speech at a New York hotel in which he proposed increased jail time for executives guilty of fraud and a task force to coordinate government efforts against fraud, among other measures. While the speech was greeted by most Wall Street participants, they said the continuing concerns about accounting and the economy outweighed the proposals in investors' minds.

Asian-Pacific stocks finished lower Wednesday. A raid by securities regulators on the offices of the French-American media company Vivendi (V: Research, Estimates) sent European markets lower in midday trading.

Treasury prices fell, pushing the 10-year note yield up to 4.78 percent from 4.74 percent late Tuesday. The dollar eased higher against the euro, which remained above 99 cents, and was little changed versus the yen.

Brent oil futures rose 30 cents to $25.21 a barrel in London, where gold rose in early trading.

Shortly after trading begins, the government issues its May report on wholesale inventories. They're expected to have declined 0.2 percent, narrower than the 0.7 percent drop posted in April, according to a consensus of economists surveyed by Briefing.com.

Dow component General Motors could struggle after Banc of America downgraded both GM (GM: Research, Estimates) and Ford (F: Research, Estimates) to "market perform" from "buy," noting that both automakers will have to match DaimlerChrysler's 7 year/70,000 mile powertrain warranty.

Banc of America also cut the price target for Dow-component IBM (IBM: Research, Estimates) to $90 from $100, adjusting for the company's discontinued hard-drive business and the weak PC environment.

Morgan Stanley upgraded Brocade Communications (BRCD: Research, Estimates), which makes switches for storage systems, to "overweight" from "equal-weight" citing potential of the company's SilkWorm 3200 switch product cycle. The stock rose $1.06 to $17.51 before hours.

Yahoo! (YHOO: Research, Estimates) is the star attraction among the companies scheduled to report quarterly results after trading concludes. The Internet portal operator is forecast to post second-quarter earnings of 2 cents a share versus a loss of 4 cents a share a year earlier, according to a consensus of analysts surveyed by First Call.

Among other companies due to report after the close include biotech developer Genentech (DNA: Research, Estimates) and network equipment maker Redback Networks (RBAK: Research, Estimates).

The wireless sector could also see some movement after the Wall Street Journal reported AT&T Wireless (AWE: Research, Estimates) and VoiceStream Wireless, majority owned by Deutsche Telekom, are in merger talks to create the nation's second-largest cellular phone company.

Credit Suisse First Boston downgraded Celestica (CLS: Research, Estimates), the provider of electronics manufacturing services, to buy from "strong buy" and also cut its 2002 earnings estimate to $1.11 from $1.25, saying it sees "flattish growth" in a challenging industry environment. Celestica dropped 38 cents to $18.12 Tuesday.

The brokerage also trimmed its 2003 estimates on another sector component, Flextronics (FLEX: Research, Estimates), to 38 cents a share from 40 cents a share. The company shed 6 cents to $7.44 Tuesday.

Prudential Securities downgraded Duke Energy (DUK: Research, Estimates) to "hold" from "buy." Duke shares lost $1.25 to $29.06 Tuesday.