Stocks set for mild rebound

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NEW YORK (CNNMoney.com) -- A reading on productivity that came in stronger than expected and solid media earnings could help stocks rebound Wednesday, after recession fears sparked the biggest sell-off in nearly a year.

Less than an hour before the opening bell, Nasdaq and S&P futures were higher, with a comparison to fair value indicating a positive open.

Stocks tanked Tuesday after a weak reading on the service sector from the Institute of Supply Management sparked new recession fears. The Dow sank 370 points, or about 3%, marking its biggest one-day point loss since mid-October and worst one-day percentage fall since February 27, 2007.

But bargain-hunting investors appeared ready to help stocks mount a recovery of sorts on Wednesday.

"Did yesterday's ISM mark the official ringing of the recession bell?" said Art Hogan, chief market analyst at Jefferies & Co. "Maybe it was, but the question is how much selling is too much. You look at these things, people are going to try to pick the bottom, even if that's a dangerous game."

A government report on productivity that showed a 1.8% rise in the fourth quarter also helped cheer investors. The reading was much stronger than the forecast of only a 0.5% rise from economists surveyed by Briefing.com, although it was well off of the 6% improvement seen in the third quarter.

Strong productivity gains can help keep inflation in check, allowing the Federal Reserve to keep cutting interest rates in an effort to avoid or mitigate a recession.

Sentiment was helped by strong results at media firms, which can be an indicator of strength or weakness in the overall economy because these firms depend on consumer spending and advertising.

Walt Disney (DIS, Fortune 500) reported quarterly earnings late Tuesday that topped Wall Street's forecast. Shares of the Dow component gained 5% in after-hours trading.

Media conglomerate Time Warner (TWX, Fortune 500), owner of CNNMoney.com, also posted results that met analysts' expectations. Gains at Time Warner Cable (TWC), the nation's No. 2 cable operator, as well as at its film studios, helped balance a large drop in revenue and earnings at America Online. The company expects slower earnings growth in 2008 that would be near forecasts.

The media sector could also get a boost after the Writers Guild of America sent a letter to members saying it hopes that terms of a tentative agreement with movie and television producers would be finalized into a new deal by the end of the week, ending a three-month strike that has shut down production of many television series and movies.

On tap for Wednesday is a government report on weekly crude inventories at 10:30 a.m. ET. Oil prices were narrowly higher ahead of that report, with a barrel of light, sweet crude edging up 19 cents to $88.60 a barrel. Oil prices fell sharply Tuesday on recession fears.

The battered housing and homebuilding markets are a primary cause of recession fears. One piece of good news from that sector was a 12% jump in mortgage applications to purchase homes last week, according to the Mortgage Bankers Association.

But early Tuesday luxury homebuilder Toll Brothers (TOL, Fortune 500) reported reported preliminary figures that showed a sharp drop in sales as it warned that it is "not yet seeing much light at the end of the tunnel."

Results in the so-called Super Tuesday primary, in which voters in 24 states cast votes, showed Sen. John McCain cemented his status as Republican Party front-runner. Democratic voters remained split between Sens. Hillary Clinton and Barack Obama, according to CNN's projections.

Hogan doubts that will have much impact on markets, though. "What do we know now that we didn't know going into the day?" he said. "The Republican race could close down faster, but we're not going to know for while who will win on the Democratic side. But there's not a strong difference there in Wall Street's opinion."

In global trade, fears of a U.S. recession raised anxiety in Asia, where markets posted sharp losses. Japan's Nikkei tumbled nearly 5% and Hong Kong stocks dropped 5.4%. But in Europe, where traders had a chance to react to the service sector reading Tuesday, shares rose slightly in early trading Wednesday.