Wall Street waits for Bernanke

NEW YORK (CNNMoney.com) -- Stocks were poised for a flat open Thursday, as investors balanced their hopes for a lift from testimony from Federal Reserve Chairman Ben Bernanke to Congress with a much bigger-than-expected loss from Merrill Lynch.

Futures were higher in early trading, but turned lower following Merrill's results. But a comparison to fair value pointed to a flat open.

Fourth-quarter results from Merrill (MER, Fortune 500) showed an $11.5 billion writedown due to the brokerage's bad bets on subprime mortgages, and resulted in about a $10 billion loss from continuing operations which was far worse than forecasts.

The results could further roil the financial sector, which has been pummeled by the subprime crisis. Citigroup (C, Fortune 500) took a massive $18.1 billion write-down in its fourth quarter while JP Morgan Chase (JPM, Fortune 500) reported a $1.3 billion hit.

But stocks could get a lift from much-anticipated comments by Bernanke due to start at 10 a.m. ET. The central bank chief is due to testify before the House Budget Committee and is widely expected to express support for the concept of a stimulus package to spur the weakening economy.

His remarks come a week after he said the central bank was "ready to take substantive additional action" to avoid a recession, which was taken a signal that deeper rate cuts were on the horizon.

Peter Cardillo, chief market economist for Avalon Partners, said he believes that Bernanke's comments are far more likely to lift markets than to worry investors, especially if he voices any kind of support for a economic stimulus package.

"Anything that suggests lowering corporate taxes or tax cutting would be welcome by the markets. I suspect that is where he's going to lead," he said. "Right now the market is starving for any good piece of news."

Bernanke is also likely to be asked about legislation governing the operations of government sponsored mortgage finance firms Fannie Mae (FNM) and Freddie Mac (FRE, Fortune 500).

The Wall Street Journal reported that the Treasury Department privately gave those two firms a proposal Monday night that would establish new standards for how the government approves debt issued by both firms. The paper says the move is a sign of the Bush Administration's growing reliance on the firms to fund home mortgages as private investors continue to retreat from the market.

Economic reports Thursday include a report on December housing starts and building permits, which are both forecast to fall to a 14-year low for a monthly reading. The report comes the day after a survey showed builder confidence edged up only narrowly off of record lows, with most builders still seeing the market as poor both today and six months down the road.

In global trade, Asian markets rebounded to finish higher, and European stocks rose in early trading.

Oil prices rebounded above the $91 a barrel level after a sell-off Wednesday that followed a report that showed a surprise increase in U.S. fuel inventories. A barrel of light sweet crude rose 56 cents to $91.40 a barrel in electronic trading.

In other corporate news, software company Oracle (ORCL, Fortune 500), which helped lift markets Wednesday by announcing an $8.5 billion deal for rival BEA Systems (BEAS), announced another small deal after the market close Wednesday. It purchased Captovation, a privately-held company that makes document imaging software, for undisclosed terms. Shares of Oracle gained 1.8 percent in early Frankfurt trading.