Wall Street worries about Fed

LONDON (CNNMoney.com) -- U.S. stock futures were weaker Thursday despite encouraging data on the health of the economy as investors pondered whether the Federal Reserve will cut short-term interest rates.

At 7:06 a.m. ET, Nasdaq and S&P futures were lower, pointing to a pullback for stocks at the open.

The Commerce Department on Thursday reported that the economy continued to expand at a healthy pace.

According to the latest government read, the U.S. economy grew at 4 percent in the second quarter, its fastest pace in more than a year.

Economists surveyed by Briefing.com had forecast a 4.1 percent annual rate of growth for the second quarter, up from its previous estimate of 3.4 percent.

Separately, the Labor Department reported that the number of newly laid off workers filing for unemployment benefits rose to 334,000 last week, an increase of 9,000 from the previous week. However, economists were forecasting a decline of 2,000 new claims to 320,000.

Stocks had rallied Wednesday on hopes that the central bank would intervene in markets. In a letter sent to Sen. Charles Schumer (D-N.Y.), Bernanke said the Fed was monitoring the trouble in financial markets and prepared to step in and take action if necessary.

The comments raised expectations that the Fed will cut rates and helped the Dow Jones industrial average gain nearly 250 points. Asian stocks rebounded overnight, and major European markets rose in early trading on Thursday.

Investors will look for more clues about what the central bank intends to do with rates on Friday, when Bernanke is due to give a speech about monetary policy and housing in Jackson Hole, Wyo.

Hopes that the Federal Reserve will cut rates were hit after a report in The Wall Street Journal said the central bank may not rush to the rescue of investors.

Fed Chairman Bernanke wants to break the assumption that central bank will cut rates whenever there is turmoil in financial markets, the report said.

In major corporate news, private equity firm Kohlberg Kravis Roberts is in talks with banks over the terms of its pending buyout of First Data (Charts, Fortune 500), according to the Journal.

Toyota (Charts) President Katsuaki Watanabe said problems in the U.S. subprime mortgage market could affect the car maker's sales there.

Yahoo's (Charts, Fortune 500) top sales executive is leaving the company in the latest reorganization move by President Susan Decker, said the company.

On the earnings front, Sears Holdings (Charts, Fortune 500) reported a steep 40 percent drop in second-quarter profits, although sales were essentially in line with Wall Street estimates. H&R Block (Charts, Fortune 500) said its losses ballooned, and Tiffany (Charts) reported lower profits.

Freddie Mac, the nation's second-largest mortgage buyer said its second-quarter profit fell 45 percent.

Also due before the bell are earnings from Del Monte (Charts). PC maker Dell (Charts, Fortune 500) is scheduled to post results after the market close.

Treasury prices rose, lowering the yield on the benchmark 10-year note to 4.54 percent from 4.57 percent late Wednesday. Bond prices and yields move in opposite directions.

Oil prices gained, with U.S. light crude for September delivery adding 35 cents to $73.86 a barrel.