* Doubts about impact of cuts temper optimism
* Credit market paralysis persists
* Financials give up earlier gains
(Recasts first paragraph, updates prices)
By Ellis Mnyandu
NEW YORK, Oct 8 (Reuters) - U.S. stocks headed for a lower
open on Wednesday as investors feared that coordinated rate
cuts by global central banks, including the Federal Reserve,
would fail to unfreeze the credit markets and avert a global
recession.
Following the rate action, futures initially rose and
European stocks rallied.
But with financial markets awash with signs that credit
markets remained effectively gridlocked, the boost of the rate
cuts proved short-lived.
Financial shares, which initially, were poised to bounced
at the open, also reversed gains, causing the electronically
traded fund that tracks the financial sector <XLF.A> to slide
nearly 4 percent. Shares of Bank of America <BAC.N> dropped 17
percent to $19.80.
"You still have a lot of people who are very nervous about
this market. We've seen rate cuts in the past not really have
any effect on the credit markets," said Cleveland Rueckert,
market analyst at Birinyi Associates Inc Stamford,
Connecticut.
"The central banks cutting rates doesn't open up some of
the valves that the banks control in lending to each other, in
lending to other corporations."
S&P 500 futures <SPc1> dropped 20.20 points and were below
fair value, a formula that evaluates pricing by taking into
account interest rates, dividends and time to expiration on the
contract. Dow Jones industrial average futures <DJc1> fell 173
points and Nasdaq 100 <NDc1> futures shed 33.25 points.
U.S. retailers included a bright spot -- Wal-Mart Stores
Inc <WMT.N> whose shares rose before the bell 1.8 percent to
$55.80. But struggling department stores posted disappointing
September sales as the financial crisis prompted cash-strapped
shoppers to be more thrifty.
Adding to the gloom on Wall Street, the third-quarter
earnings season started poorly after Alcoa Inc <AA.N> reported
it results after the bell on Tuesday and said it was halting
major capital projects in the face of uncertain markets.
Shares of the aluminum producer fell nearly 7 percent to
$15.56 before the bell after its results showed a
lower-than-expected quarterly profit on softer demand in key
sectors like the aerospace and auto industries.
Agricultural technology company Monsanto Co <MON.N> posted
a smaller fourth-quarter loss on record revenues on Wednesday
as herbicide and seed sales climbed. Its shares fell 5.6
percent to $70.03 before the bell.
A fall on Wall Street will extend a global rout that
slammed Asia, where the Nikkei slid more than 9 percent, and
declines in Europe, where fallout from the credit crisis
prompted Britain to pump $87 billion of emergency capital to
shore up its banks.
The interbank cost of borrowing overnight dollars jumped
again on Wednesday, indicating that credit markets remained
gridlocked.
Besides the Fed, the European Central Bank, Bank of
England, Swiss, Canadian, Chinese and Swedish central banks
announced rate reductions.
(Reporting by Ellis Mnyandu; Editing by Kenneth Barry)
