Wall St. bears enter the house

NEW YORK (CNNMoney.com) -- Stocks were set for some turbulence on Wall Street Friday after the latest government report showed that the housing slump in January was much worse than anticipated.

Nasdaq and S&P futures stayed in negative territory following the housing data, indicating a pullback for stocks at the start of trading.

The Census Bureau reported that housing starts plunged in January, coming in much weaker than forecasts. New homes started in January fell 14.3 percent to an annual rate of 1.41 million from the 1.64 million pace in December. Economists surveyed by Briefing.com had forecast a 1.6 million rate for January.

Before the report, David Kelly, economic adviser for Putnam Investments, said a steeper than expected drop could raise new concerns about the housing slump, while an unexpected rise could cheer markets, even if it adds to the glut of homes available for sale on the market.

"The one big bet that the Fed and everyone is making is that housing is stabilizing," said Kelly. "I think home sellers might appreciate it if starts fall, but for the economy the key thing is not for housing prices to start climbing but for construction spending to stop falling."

On Thursday, the National Association of Realtors reported the biggest and most widespread drop in housing prices on record in the fourth quarter, while the National Association of Home Builders' survey of its members' confidence rose in February to its highest level since June.

Separately, the government also reported that wholesale prices fell in January by 0.6 percent on lower energy prices after a 0.9 percent jump in December. It was the largest decline in three months.

Economists surveyed by Briefing.com forecast that wholesale prices fell 0.6 percent on lower energy prices after a 0.9 percent jump in December.

Overseas, stocks in Asia closed mixed ahead of the Lunar New Year that will close most markets in the region on Monday and some for longer periods. Stocks in Europe were little changed in the early going.

In corporate news, shares of Dow component Microsoft (Charts) fell 1.7 percent in after hours trading and slightly less in heavy early trading in Frankfurt after CEO Steve Ballmer said Thursday that analysts' forecasts for revenue from Windows Vista in fiscal 2008 were "overly aggressive."

Birmingham, Ala.-based Compass Bancshares (Charts) agreed early Friday to be purchased for $9.6 billion by Spanish bank Banco Bilbao Vizcaya Argentaria in a cash and stock deal that will pay either an 8.2 percent premium in cash or 10.6 percent premium in the Spanish bank's U.S. shares, based upon Thursday's close.

Airline stocks could get a lift after Business Week reported late Thursday that AMR Corp. (Charts), parent of No. 1 carrier American Airlines, might be a buyout target of a group including Goldman Sachs and British Airways (Charts).

Shares of AMR soared 10 percent in after-hours trading, while British Airways shares were narrowly lower, off of earlier lows on the day in London trading early Friday. Stocks in the industry have slipped about 10 percent as a group in the last month, partly due to declining expectations of deals in the sector.

Prosecutors are strongly considering filing criminal charges against the former chief financial officer of chipmaker Broadcom (Charts) and at least one other former executive, according to a report in the Wall Street Journal.

The Journal also reports that aerospace manufacturer Boeing (Charts) is looking to revive its commercial satellite business.

Oil was lower. U.S. light crude eased 9 cents to $57.90 a barrel in electronic trading.

Treasury prices were slightly higher, with the U.S. 10-year note yield slipping to 4.68 percent from 4.7 percent late Thursday. The dollar was stronger against the euro and the yen in early trading.

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