Sinking feeling for stocks

NEW YORK (CNNMoney.com) -- Stocks looked set to slide Friday after the prospect of a big writedown from Merrill Lynch, combined with a profit warning from American Express, spooked investors.

At 7:30 a.m. ET, S&P 500 and Nasdaq futures were mired in the red, although futures trimmed some of the losses after Bank of America announced it would purchase embattled mortgage lender Countrywide Financial for $4 billion in an all-stock transaction.

Countrywide (CFC, Fortune 500) shares fell 13 percent in pre-market trading on the news after surging 51 percent in trading on Thursday. Bank of America (BAC, Fortune 500) stock fell about 3 percent in pre-market trading.

Investors were haunted by the prospect that bank losses stemming from bad mortgage bets may be even deeper than originally thought.

The New York Times reported that Merrill Lynch (MER, Fortune 500) is expected to take a $15 billion hit when it reports results next Wednesday, nearly twice its earlier estimate.

Merrill, Citigroup (C, Fortune 500) and JP Morgan Chase (JPM, Fortune 500) are all due to report quarterly results next week.

Talk of the massive writedown appeared to dim the optimism that lifted stocks on Wall Street Thursday.

Stocks ended yesterday's session higher on talk of the Countrywide rescue and after Federal Reserve Chairman Ben Bernanke hinted in a speech Thursday that deeper interest rate cuts may be on the way. The central bank issues its next decision on rate Jan. 30.

The Fed chief acknowledged that the economic outlook in 2008 has weakened, but said again that the central bank doesn't think the economy will fall into a recession this year.

Oil prices slipped despite expectations of more aggressive rate cuts from the Fed. U.S. light, sweet crude for February lost 41 cents to $93.30 a barrel in electronic trading.

On the economic front, investors will take in the November trade report - economists surveyed by Briefing.com expect the trade deficit to widen to $59.5 billion from October. A reading on import and export prices is due as well.

In other corporate news, American Express (AXP, Fortune 500) warned of lower profits in 2008, as consumers slow their spending and miss credit card payments. The credit card issuer also said it plans to set aside $440 million for bad loans in the fourth quarter.

Delta Air Lines (DAL, Fortune 500) shares could enjoy another boost from merger speculation. The company's board is expected to give executives the go-ahead on merger talks with both Northwest and United, The Wall Street Journal reported Friday. Delta stock soared more than 20 percent Thursday on talk that the company was close to a deal with a rival air carrier.

In global trade, Asian markets tumbled, and European stocks fell in morning trading.