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Stocks Find Favor Ahead of Fed

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Micron Technology (NYSE:MU) reported over the weekend that it was nearing the end of its purchase of Hynix Semiconductor, a South Korean firm. The two companies have been engaged in a deal since December. Micron plans to purchase Hynix's memory business for about $4 billion. The news over the weekend may have sparked some further short covering among the bears and buying from the longs, who prefer consolidation in any industry.

McAfee (NASDAQ:MCAF) was higher this morning after Network Associates (NYSE:NET) said it would acquire the outstanding shares that it doesn't already own. The deal, being labeled a stock swap, is estimated to be worth about $227 million, or about 0.675 shares of Network Associates for each share of McAfee.

Two Big Events Tuesday

The Federal Reserve holds its March meeting tomorrow, when investors expect Alan Greenspan to hold short term rates at current levels. The market does, however, expect the Fed to shift to more of a neutral bias, away from its dovish stance in place for the last year. The bond market opened higher this morning ahead of the Fed meeting with the Ten Year Yield (TNX.X) opening lower this morning.

The final voting for the largest merger in the history of the technology sector will take place tomorrow. The Hewlett Packard (NYSE:HWP)/Compaq (NYSE:CPQ) deal will reach its final hour, with many calling the vote too close to predict. The unfortunate part is that the outcome of tomorrow's vote won't be known for several days after. The spread -- a measure of the likelihood of the completion of the merger -- between the two stocks has widened in recent weeks, suggesting that the deal may not go through. That trend could be seen even this morning with HWP opening fractionally higher and CPQ fractionally lower.

Overseas Action

Investors in Japan took recent profits off the table ahead of the Federal Reserve meeting tomorrow. Separately, the Bank of Japan is expected to being its two day meeting tomorrow as well. Japan's Nikkei closed a little more than 1 percent lower. The most weakness was concentrated in technology and telecom issues in Asian markets, but the selling was contained.

Europe was stable to slightly higher this morning with technology and telecom shares in favor. A slew of earnings reports from those two sectors later this week should dictate trading across the Atlantic.

Eric Utley
Option Investor

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