Economic woes worry stocks

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NEW YORK (CNNMoney.com) -- Futures see-sawed Wednesday on more upheaval among some key financial firms and UPS' warning of a slowdown in the packages it carries.

About an hour before the open futures were mixed, pointing to a shaky start on Wall Street.

The Wall Street Journal reported that the Federal Reserve is considering contingency plans for expanding its lending power in the event its recent steps to unfreeze credit markets fail. The report comes after the release of minutes Tuesday of the March 18 Fed meeting showed policymakers at the central bank worried about the risk of a "severe and protracted" economic downturn that could last into 2009.

The report and the minutes seemed to at least dent the hopes of some investors that the market had already found its bottom.

Citigroup (C, Fortune 500) is reported to be close to a deal to unload $12 billion of risky leveraged loans and bonds to a group of private-equity firms, according to published reports. Shares of Dow component Citigroup, which lost 3.4% in trading Wednesday, rebounded 3% in after-hours trading.

United Parcel Service (UPS, Fortune 500), the world's largest shipping carrier, cut its first-quarter profit guidance after the bell Tuesday, citing lower volume and higher fuel costs in the period. UPS is estimated to carry goods worth more than 5% of the nation's gross domestic product on its trucks and planes and the warning could be seen as another sign the economy falling into recession. Shares of UPS fell 4% in after-hours trading.

Credit agency Standard & Poor's late Tuesday slashed its ratings on four mortgage insurers - MGIC Investment (MTG), Old Republic International (ORI), PMI Group (PMI) and Radian Group (RDN), and warned further downgrades are possible.

The Wall Street Journal reported that Washington Mutual (WM, Fortune 500), the nation's largest thrift, rejected a preliminary takeover bid worth about $7 billion from JPMorgan Chase (JPM, Fortune 500). The offer came to a below market price of about $8 a share, according to the report. WaMu Tuesday obtained a $7 billion capital injection from private-equity group TPG.

And AMR (AMR, Fortune 500) unit American Airlines expected to cancel more flights as it tried for a second time to comply with federal inspection rules about wiring on its key workhorse aircraft. The world's largest airline canceled about 500 flights Tuesday and could see an additional 300 flights grounded Wednesday. It ran into similar problems last month.

U.S. stocks fell in trading Tuesday after the Fed minutes. Markets in Asia closed lower Wednesday on the Fed minutes, while major indexes in Europe also were down in early trading.

Oil prices were little changed in early trading ahead of the 10:30 a.m. ET report on U.S. fuel inventory. Electronic trading trimmed 7 cents off the price of a barrel of light sweet crude, taking it to $108.43.

The only economic reading due Wednesday is on wholesale inventories in February, which is expected to show a 0.5% rise, down from the 1% gain a month earlier.

But the economy will get attention in Washington Wednesday. The Journal reports that the Bush administration could announce a proposal as soon as Wednesday that would expand federal help for troubled homeowners, an attempt to answer proposals from Democrats in Congress.

The House Financial Services committee holds hearings on legislation, widely known as the Dodd-Frank bill, to allow the Federal Housing Administration to take a more active role in helping borrowers facing a risk of foreclosure reduce what they owe on their mortgages. Among those set to testify are Fed Governor Randall Kroszner and the heads of the FHA, the Federal Deposit Insurance Corp. and the Office of Thrift Supervision.