Wall Street takes a breath

LONDON (CNNMoney.com) -- Stocks are likely to open higher Wednesday on increasing expectations of a rate cut by the Federal Reserve.

S&P and Nasdaq futures rose sharply, pointing to a solid start for solid start for Wall Street.

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Wednesday the Wall Street Journal reported that many on Wall Street believe the Fed will still have to cut interest rates sharply, perhaps starting in the next week or two, although the paper also said Fed officials would prefer to wait until their Sept. 18 meeting. In a survey of economists published Wednesday by USA Today, a majority expect a rate cut in September.

A meeting Tuesday between Fed Chairman Ben Bernanke, Senate Banking Committee Chairman Christopher Dodd and Treasury Secretary Hank Paulson fueled the expectations for a Fed rate cut. That meeting helped stabilize money markets Tuesday.

Three-month Treasury bills sold off, raising their yield. Earlier in the week, a flight to quality sparked a rally that resulted in the 3-month T-bill yield posting its biggest drop since the stock market crash of 1987. T

The price on the 10-year Treasury fell early Wednesday, in another sign that investors are less nervous than earlier in the week.

The yield on the 10-year note rose to 4.64 percent from 4.59 percent late Tuesday. Bond prices and yields move in opposite directions.

The dollar edged lower against the euro but rose versus the yen.

Credit worries also eased overseas. Most markets in Asia headed higher, although Japan's Nikkei finished the session slightly lower. European stocks rose in the early going.

In corporate news, luxury home builder Toll Brothers (Charts, Fortune 500) posted sharply lower earnings its fiscal third quarter and projected more trouble ahead, but bucked the trend of its larger rivals by managing to stay in the black for the period.

Medical device maker Medtronic (Charts, Fortune 500) reported healthy gains in sales and earnings after the bell Tuesday, but analysts were disappointed by revenue growth and shares fell 2.4 percent in after-hours trading.

Online brokers TD Ameritrade (Charts) and E*Trade Financial (Charts) are holding merger talks, according to the Wall Street Journal. The newspaper said the two companies have been in talks for weeks but aren't close to a deal.

Dubai World, a holding company for the Persian Gulf state, agreed early Wednesday to spend $5 billion to buy nearly a 10 percent stake in Vegas casino operator MGM Mirage (Charts, Fortune 500), the Wall Street Journal reported.

Oil prices rebounded in early trading ahead of a government reading on fuel inventories, after a sell-off Tuesday took the price below $70 a barrel. U.S. light crude added 31 cents to $69.88 a barrel in electronic trading.