Wall Street worried over Fed

NEW YORK (CNNMoney.com) -- U.S. stock futures were weaker Monday as investors expressed uncertainty over how low the Federal Reserve will take short-term interest rates this week and new warning signs of trouble in credit markets.

Traders are widely expecting Fed policymakers to cut rates when they meet Tuesday.

A rate cut is expected to soothe some of the pain caused by the credit crunch, although investors may be disappointed if the Fed cuts rates by only a quarter of a percentage point rather than the half point advocated by some.

Art Hogan, chief market analyst at Jefferies & Co., said greater than normal uncertainty as to what the Fed will do on rates will be a drag on stocks Monday.

"Being the day before the Fed anouncement is going to take any wind out of the sails," he said. "If you couple with it the rest of news, on balance, there's more bad news than good news on the tape this morning."

Fed watchers and investors will also be weighing comments from former Chairman Alan Greenspan in his book and in a round of media interviews tied to its release. Among the comments, he said he sees more downside to the housing market and that investors are going to be frightened to deal with collateral debt obligations for some time to come, which could provide further problems for the credit markets.

In the latest sign of trouble for credit and housing markets, regional bank National City (Charts, Fortune 500) said Monday that its after-tax losses for its mortgage banking division are likely to be close to $160 million in the third quarter.

One look at the fall out from the credit market problems will come when Wall Street brokerages report results this week. Lehman Brothers reports results on Tuesday and is followed by Morgan Stanley on Wednesday. Bear Stearns and Goldman Sachs post results on Thursday.

In major corporate news, a European Union court rejected Microsoft's appeal against a landmark ruling that found the software giant guilty of abusing its dominant market position. The court also upheld a $613 million fine that was levied by EU regulators. Shares of Microsoft (Charts, Fortune 500) fell about 1.3 percent in Frankfurt.

A weekend of round-the-clock negotiations between General Motors (Charts, Fortune 500) and the United Auto Workers failed to produce a new labor agreement to replace the one that expired at 11:59 p.m. Friday. But a contact extension kept nearly 73,000 union members on the job at the nation's No. 1 automaker, and negotiators were due back at the table Monday morning. Shares of GM were up 1 percent in Frankfurt trading.

Although problems in the credit markets have put the brakes on some corporate deals recently, defense contractor ITT Corp. (Charts, Fortune 500) announced Monday it is buying EDO Corp. (Charts) for approximately $1.19 billion in cash, paying a premium of about 9 percent over its closing price Friday.

In global trade, stocks in Asia finished mixed, while and major markets in Europe were lower in early trading. Among the problems for European markets is a report on the BBC Sunday that panicked customers have withdrawn nearly £2 billion, or $4 billion, from their accounts at Britain's Northern Rock, one of its largest mortgage lenders, since it took an emergency loan from the Bank of England.

Also in the news in Europe, the board of Dutch bank and takeover target ABN Amro (Charts) announced Sunday it will not recommend either of the two rival takeover bids it has received.

The dollar was higher against the euro but lower versus the yen.

Oil prices, which had topped the $80 a barrel benchmark for the first time last week, fell below $79 in early trading Monday. Light, sweet crude for October delivery lost 62 cents to $78.48 a barrel in electronic trading in the New York.