Wall Street stocks were set for a lower start on Wednesday after FedEx (NYSE: FDX - News) reported a fourth quarter loss and Morgan Stanley (AMEX: MWD - News) reported second quarter results that largely met expectations but highlighted the continuing problems facing the financial sector.

FedEx said it lost $241m in the fourth-quarter as rising fuel costs and a significant writedown on its copy centre unit, FedEx Kinko, took their toll. That compares with a $610m profit a year earlier.

Expectations for the firm were low after FedEx twice cut its earnings forecast for the quarter and earlier this month warned that it would take a non-cash charge of almost $700m as it drops the Kinko's name from its stores.

Still, the results will further heighten fears about the detrimental impact of rising oil prices on the wider economy. The parcel delivery firm is often seen as an industrial bellwether because its business depends on the levels of activity in the economy.

FedEx shares fell 5.2 per cent to $80 in pre-market trading.

Meanwhile, Morgan Stanley said that profits dropped 57 per cent to $1.03bn in the second quarter, due to deteriorating performances at its trading and investment banking units which have suffered from the credit crunch and the US housing crisis.

On Tuesday, Goldman Sachs reported estimate-beating profits and revenues, proving yet again that the brokerage can find growth in tough markets, but few analysts expected such a robust performance from Morgan.

Goldman also undercut market sentiment after its analysts warned that US banks might have to raise as much as $65bn in additional capital to shore up their balance sheets weakened by the mortgage crisis.

The financial sector gave up early gains on Tuesday to close down 2.9 and there is little sign that a more positive mood will prevail on Wednesday.

As if to confirm Goldman's predictions, Fifth Third Bancorp (NASDAQ: FITB - News) , said on Wednesday morning it would raise $2bn through selling shares, and "non-core" businesses in order to shore up its balance sheet after nine quarters of profit decline. The Ohio-based bank will also cut its dividend.

Morgan shares fell 4.1 per cent to $38.87 in pre-market trading while Goldman shares dropped 0.9 per cent to $177.86 and Fifth Third slumped 16 per cent to $10.70.

Less than an hour before the opening bell, S&P 500 futures were down 9.3 points at 1,343.7 while Nasdaq futures were down 16.25 points at 1,970.

Futures for the Dow Jones Industrial Average were down 77 points at 12,096.

In the absence of any economic data of real significance markets will likely dwell on inflation concerns and oil prices.

Over the last few weeks central bankers have talked tough on inflation, prompting concern that interest rates may start to rise in the near future and causing a sell off in equity markets.

Many economists however, believe that persistent economic weakness and rising unemployment in the US will forestall any rate changes, leaving investors without a clear direction.

At 10:30am the government will report weekly oil inventories and that could trigger sharp moves in crude futures and the stock market in turn. Rising oil prices usually hurt stocks because they increase inflation.

Recent flooding in the Midwest is adding to inflation concerns, by swamping farmland and driving up corn and soybean prices, as well as hitting railway stocks.

Union Pacific said earlier in the week that flooding had disrupted services and damaged its infrastructure and on Wednesday it estimated that the weather would trim second-quarter earnings by about 5 cents a share.

Lee Klaskow, an analyst with Longbow Research, said: "The floods are not only forcing railroads to cancel service, those trains that are able to be rerouted will be done so at greater expense to the carriers."

Longbow cut its second quarter and full year 2008 earnings estimates for the sector.

In other corporate news, MF Global, the broker of exchange-traded futures contracts, also retreated after the company said net revenue this quarter would fall short of analysts' estimates. The company added that it planned to sell shares to pay down debt.

MF Global shares tumbled 15.7 per cent to $11.18 in pre-market trading.

European stocks were lower ahead of the open on Wall Street, dragged down by banking stocks. The FTSE Eurofirst 300 fell 0.7 per cent to 1,259.9

Asian equity markets closed mainly higher, led by exchanges in mainland China which surged 5.6 per cent as oil drifted lower and property companies and miners advanced on hopes that the region would be able to resist any global economic slowdown.

In Japan, the Nikkei 225 average made its best close for eight days. It ended 0.7 per cent higher at 14,452.82 and the broader Topix index was up by 0.5 per cent at 1,409.64.

Bond yields were little changed. The yield on the two-year Treasury note fell less than 1 basis point to 2.89 per cent while the yield on the 10- year note held steady at 4.20 per cent.

Gold was trading $7.90 higher at $894.80 per troy ounce.

Oil prices were also higher early in New York. US crude prices were up $0.91 at $134.92 a barrel.