Stocks on edge ahead of Fed

NEW YORK (CNNMoney.com) -- U.S. stocks were set to pull back a bit at Tuesday's open, in the wake of the biggest one-day gain for the Dow Jones industrial average in nearly five years, as investors await news from the Federal Reserve on interest rates.

At 8:41 a.m. ET, Nasdaq and S&P futures were slightly lower, pointing to a lower opening for stocks.

The Dow rose nearly 287 points Monday on strength in the financial sector and an easing of some of the credit market concerns.

Investors will keep a close eye on the Fed, which has its monetary policy meeting Tuesday. A change in interest rates is not expected when the Fed makes its announcement, set for 2:15 p.m. ET.

But Peter Cardillo, chief market economist at Avalon Partners, said the Fed might comment on the recent housing woes and trouble in the subprime market, "hinting to the market that that they are there to add liquidity."

"It's really all about the Fed today," he added.

A preliminary reading on worker productivity came in slightly below estimates, while the inflation component in the report was slightly higher than expected, causing futures to fall a bit further.

The Labor Department said productivity in the second quarter rose 1.8 percent on an annualized basis, slightly lower than the 2.0 percent forecast by economists polled by Briefing.com. Unit labor costs rose 2.1 percent, verses the 1.8 percent rise expected.

In corporate news, a judge overturned a $1.5 billion ruling against Microsoft (Charts, Fortune 500), saying the software maker didn't violate audio patents held by French rival Alcatel-Lucent.

Microsoft also said it's cutting the price of the Xbox 360 by 13 percent in the U.S., hoping to boost holiday sales.

Toyota (Charts) said it's planning on increasing its world output by 6 percent in 2008, largely crediting growth in china and demand for its fuel efficient cars.

American Express (Charts, Fortune 500) was fined $65 million for failing to detect drug-related money laundering at a subsidiary over several years.

And Sun Microsystems (Charts, Fortune 500) unveiled a new microprocessor it hopes to sell to makers of set top boxes and routers, a wider market beyond its traditional server business.

Like stock futures, oil prices were little changed following days of big price swings. U.S. crude for September delivery rose 8 cents to $72.14 a barrel in early electronic trade.

Overseas, European markets rose sharply in midday trade, while Asian markets were mixed.

Treasurys edged higher, with yields on the benchmark 10-year note falling to 4.73 percent from 4.74 percent late Monday. Bond prices and yields move in opposite directions.

The dollar fell versus the yen and was little changed against the euro.