Stocks poised for tough start

NEW YORK (CNNMoney.com) -- U.S. stocks are likely to struggle in early trading Wednesday as investors wonder whether the Federal Reserve is likely to keep cutting rates.

At 8:02 a.m. ET, futures were lower and pointing to a weak open for Wall Street.

Stocks kicked off the quarter with a bang Monday, with the blue-chip Dow Jones industrial average surging to a record closing high.

But with stocks back up, there are concerns that the Fed won't lower rates when it next meets from Oct. 30-31. Stocks retreated Tuesday following Monday's rally.

Several key economic readings will be released before that meeting, including Friday's all-important employment report.

Art Hogan, chief market analyst at Jefferies & Co., said that there's a lot of nervousness about the jobs report weighing on investors and futures at this point.

Economists surveyed by Briefing.com are forecasting a gain of 100,000 jobs on U.S. payrolls after the first drop in four years in the August report. The unemployment rate is expected to edge up to 4.7 percent from 4.6 percent in the last reading.

There's worries that another much weaker-than-expected payroll number will raise fears that the economy is slowing more than expected. But a much better-than-expected reading, coupled with a big upward revision of the August number into positive territory, could spook those investors hoping for further Fed cuts.

"I think we'd like to see enough moderate to negative news to keep the Fed on the cutting track," he said.

Payroll service provider ADP releases its own reading on private sector payrolls Wednesday morning, which some look to for clues about Friday's Labor Department report. But the two jobs measures haven't correlated with each other that well in the past.

"It'll get noticed, but I don't think people will bet the farm on it," said Hogan.

Hogan also thinks investors are being cautious waiting to see if any major companies issue earnings warnings. A warning from Citigroup on Monday seemed to spark a rally on Wall Street, but Hogan said that's due to investors feeling they were finally able to get a handle on the hit that the subprime mortgage meltdown would have on banks, eliminating some of the uncertainty that investors hate.

"If we start to hear warnings from companies outside of finance that they're been hit by subprime, that's the one thing that could move the needle apart from the economic reports," he said.

The other economic readings Wednesday will be a report on service sector growth from the Institute of Supply Management, due at 10 a.m. ET, and the government will release its weekly fuel inventory report at 10:30 a.m. ET.

Oil prices were higher ahead of the inventory reading, holding above the $80 a barrel mark. A three-day slide in oil prices took prices briefly below the $80 benchmark in Tuesday trading before it rebounded back above that level in late trading.

In major corporate news, Verizon Wireless took the wraps off its holiday lineup, including a phone with large touch screen and extensive multimedia, Web browsing and e-mail capabilities similar to Apple's (Charts, Fortune 500) iPhone. Verizon Wireless is a joint venture between Verizon Communications (Charts, Fortune 500) and Vodafone Group (Charts). The new phone is made by Korean manufacturer LG Electronics.

Also aiming at Apple ahead of the holiday buying season, Microsoft (Charts, Fortune 500) unveiled its second-generation Zune digital music player. The company's answer to the popular iPod has been a disappointment to this point, with sales of 1.2 million of the device dwarfed by more than 100 million iPod sales, according to the research group Gartner.

In global trade, Asian markets ended mixed. Japanese stocks rose, but Hong Kong stocks fell sharply from their record high. Major European markets rose in early trading.