Wall Street Will Be Eyeing Merger Picture

Merger talk is in the air, and thoughts of corporate consolidation are likely to occupy investors’ minds in the week ahead as the earnings season winds down and traders look for fresh reasons to push the market higher.

Cable operator Comcast Corp.’s unsolicited $49-billion takeover bid for media giant Walt Disney Co., a deal that would create the world’s largest media company, has stirred up speculation about a comeback in deal making and put Wall Street on watch for the next mega-marriage.

Unexpectedly strong quarterly earnings reports and heavy hints from Federal Reserve Chairman Alan Greenspan that interest rates are likely to remain low for some time have underpinned investor sentiment. But after the market’s substantial climb during the last two months, concerns have mounted that most of this good news is already factored into current stock prices.

“You’ve gotten to a point now where it’s hard to squeeze out much better earnings without a much stronger economy,” said Rick Meckler, president of investment firm LibertyView Asset Management.

Merger and acquisition activity, he said, may help keep investors’ interest in buying stocks piqued.

“People will be starting to look at who else can buy a competitor and grow from that.”

In addition to the Disney deal, the world’s top wireless operator, Vodafone Group, and U.S. rival Cingular Wireless have squared off for a $30-billion-plus bidding war to gain control of AT&T; Wireless Services Inc. (See Page C4.)

Although corporate America is expected to pick up the spending baton from consumers, whose shopping habits helped ease the pain of the latest economic downturn, some economists worry that sluggish employment growth could leave consumers with empty pockets.

A surprisingly weak report on consumer sentiment Friday from the University of Michigan helped send stocks into negative territory.

For that reason, weekly jobless claims figures will garner a bit of attention this week. Economists polled by Reuters estimated that about 353,000 Americans lined up for first-time unemployment benefits in the week ended Saturday, a decrease from 363,000 the previous week.

The figures are due out Thursday.

Data on industrial production and capacity utilization in January are on Tuesday’s economic calendar.

Reports on consumer- and producer-level prices in January probably will get a yawn unless they diverge widely from expectations, analysts said, since Greenspan’s comments reassured the financial markets that the Fed isn’t ready to take back some of the stimulus that has helped the economy surge.

Technology companies and retailers stand out amid the week’s corporate earnings reports.

Both the world’s biggest retailer, Wal-Mart Stores Inc., and the second-largest U.S. discounter, Target Corp., are scheduled to issue their quarterly scorecards.

In the tech sector, No. 2 computer maker Hewlett-Packard Co. and chip equipment maker Applied Materials Inc. are among those that have earnings on tap.

With fourth-quarter results already in from more than 400 of the companies in the Standard & Poor’s 500 index, operating earnings have surpassed analysts’ estimates by nearly 5% on average, according to data compiled by Reuters Research.

Investors have been pouring money into equities, with more than $40 billion of net inflows into U.S. stock mutual funds in January, according to a report by fund consultant Strategic Insight.

A shortened trading week also could help keep stocks pinned in a narrow trading range, analysts said. U.S. financial markets are closed today in observance of Presidents Day.