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IBM get $5 billion services contract from J.P. Morgan

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After trading lower just after the open, shares of computer giant International Business Machines (NYSE:IBM) $75.90 -1.8% rebounded from its $75.60 session low to $77.43 only to give back that bounce after the company said it signed a seven-year contract for technology services with banking giant J.P. Morgan Chase (NYSE:JPM) $23.72 -0.33%.

J.P. Morgan Chase (JPM), which is the number 2 U.S. financial services firm behind Citigroup (NYSE:C) $34.90 -0.76% said it will outsource a large part of its data processing. As a result of today's agreement, JPM said it will transfer approximately 4,000 employees and contractors to IBM in the first half of 2003.

Shares of Electronic Data Systems (NYSE:EDS) $17.34 -3.68% are seeing weakness, as they were a bidder against IBM for the J.P Morgan services business.

Equities appeared to get a bounce from negative territory earlier in the morning on the IBM news as this is a larger weighted stock in the Dow Industrials, S&P 500 and S&P 100 Index, but these major indexes have sunk to their session lows in the past hour.

Economic data that came to the markets had the Chicago PMI coming in at 51.3% in December, which was just below economist's forecast of 53.0%. While the Chicago PMI remained above the 50% level which depicts expansion in this Northeastern manufacturing activity report, the 51.3% reading hints that expansion is very slow.

Also weighing a bit on equities today was the existing home sales report for November, which showed sales cooling off a bit from October's scorching pace. October's sales were revised fractionally lower to 5.76 million unit annualized pace. This had November resales falling 3.5% in November to an annual rate of 5.56%.

Freddie Mac reported a record-low 6.07% average mortgage rate in November.

The National Association of Realtors expects higher mortgage rates to cool activity next year, although housing should continue to drive U.S. growth.

David Lereah, the NAR's chief economist said he expects the average 30-year fixed mortgage to rise from sub-6-percent levels to about 6.5 to 6.6% by the end of 2003.

Jeff Bailey

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