Wall Street braces for the Fed

NEW YORK (CNNMoney.com) -- U.S. stocks looked set for a lackluster start Tuesday as investors grew uneasy ahead of the Federal Reserve's highly-anticipated policy statement.

At 8:13 a.m. ET, Standard & Poor's and Nasdaq futures were lower, although a comparison to fair value suggested at least a flat start for technology shares.

Fed policymakers start a two-day meeting Tuesday to discuss interest rates and the economic outlook. Many market watchers expect the central bank to lower rates by a quarter-percentage point when it releases its policy statement Wednesday.

Growing expectations for a Fed rate cut have helped boost stocks, which rose Monday. But that optimism has been countered by record-high oil prices and the falling dollar.

John Silvia, chief economist with Wachovia, said the weakness in the dollar has reduced hopes that the Fed might repeat the half-percentage point rate cut that it made in September, instead making only a quarter-point cut Wednesday.

"There's concerns that the Fed won't be very aggressive considering the dollar weakness," he said. "People want instant relief and they'll probably get slow help."

The dollar also fell to a fresh record low against the euro in trading Monday, then rebounded slightly in early trading Tuesday, while slipping slightly against the yen.

Crude futures rose $1.67 to settle at a record high if $93.53 a barrel on the New York Mercantile Exchange on Monday, although prices retreated in early electronic trading Tuesday, falling $1.28 to $92.25.

Still, the impact of those higher energy prices was highlighted Tuesday morning when leading U.S. consumer products maker Procter & Gamble (Charts, Fortune 500), warned higher commodity and energy costs would lead to earnings at or below forecasts for the current period.

Shares of the Dow component fell 3 percent in pre-market trading even though it reported a better than expected earnings gain in the just completed fiscal first quarter.

Investors will take in a reading on October consumer confidence, due out at 10 a.m. ET.

Concerns about the problems in the mortgage markets and the resulting downturn in housing is one of the factors that could prompt another rate cut from the Fed. The latest look at the battered housing market is due at 9 a.m. ET when S&P releases its monthly Case-Schiller home price index August, which tracks prices in 20 leading metropolitan areas.

There were comments late Monday from some leading experts that the problems in mortgage lending and home values are far from over.

Speaking on a panel Monday that focused on the problems in housing and mortgage lending, the chief executives Countrywide Financial (Charts, Fortune 500), the nation's largest mortgage lender, and KB Home (Charts, Fortune 500), both predicted more trouble ahead for those two markets.

At a separate panel Monday in Bermuda, former Federal Reserve Chairman Alan Greenspan echoed that view, saying "We've got a way to go" before the bottom of the housing slump.

In corporate news, the Wall Street Journal reported Tuesday that Internet search leader Google (Charts, Fortune 500) plans to unveil within the next two weeks a proposal to bring the much-anticipated Google-powered cell phones to market by the middle of 2008.

An Icelandic investment firm said in a Securities and Exchange Commission filing Monday that it might make a joint bid with a Dubai firm for high-end retailer Saks (Charts).

Another Dow component, aircraft maker Boeing (Charts, Fortune 500), announced a $7 billion share repurchase after the market close, news that lifted its shares 3.3 percent in after-hours trading Monday.

Most markets in Asia mostly closed lower Tuesday as investors there also waited on a Fed decision, although indexes in Hong Kong and Shanghai gained.

European markets were also lower in early trading after Swiss bank UBS (Charts) reported a net loss in the third quarter and issued a bleak outlook for its investment bank, saying it was "unlikely" to make a positive contribution to results in the current period.