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U.S. stocks seen opening up slightly as war begins

(Updates with start of Iraq attacks, likely market reaction)

By Haitham Haddadin

NEW YORK, March 19 (Reuters) - Wall Street eyed a slightly higher open on Thursday as the United States began bombing selected targets in Baghdad at the launch of a war that investors hope will be swift.

Equity index futures pointed to a slightly higher open across the board when trading resumes on Thursday morning, after U.S. President George W. Bush said American and British forces were in the early stages of an attack on Iraq.

Still, the overall reaction from equity futures was muted, given that the market was looking for a show of overwhelming force at the start of the U.S.-led assault on Iraq. U.S. officials had predicted that the war would begin with the unleashing of 3,000 or more satellite-guided bombs and cruise missiles from sea and air on targets vital to the government of Iraqi President Saddam Hussein.

"This tells me that we will probably get a better open but without much conviction," said Alan Ackerman, market strategist at Fahnestock & Co. "It may be a bit on the tentative side. This is a war in progress, and until we get more clarity not too many people will put too much money to work."

After a crisis that had been building for many months, the war began at around dawn Iraqi time, 90 minutes after a U.S. ultimatum for Saddam to leave the country expired.

But instead of the massive start that military analysts had predicted, the war began with a targeted strike, apparently based on intelligence information, aimed at the most senior elements of the Iraqi leadership, a U.S. government source said.

"It looks like an initial strike that most people weren't counting on, but the markets in Asia and the dollar look like they are on the plus side," said Peter Cardillo, chief strategist at Global Partners Securities. "I suspect that we are looking at a very nervous opening tomorrow. The market is going to track every news headline out of Baghdad and will respond accordingly."

He said he expects a quick resolution, but added that the market's real fear was the possibility of terror attacks in the United States.

"If we get through the first week without terror attacks, I think we could go up 10 to 12 percent from these levels, and then it gets back to the basics -- what is the economy doing?" Cardillo said.

Heavily armed police stood guard outside the New York Stock Exchange building in lower Manhattan as part of heightened security measures. The U.S. government on Monday put the country on "orange" alert, the second-highest level of security threat, and warned of possible attacks against the United States if the country took military action against Iraq.

Pointing to a possibly higher stock market open on Thursday, the June S&P 500 futures contract was up 3.80 points at 876.50, while the Nasdaq contract was up 5 points at 1,081. Dow futures were up 30 points at 8,270.

"Investors want a quick resolution, a certainty of results," said Brian Bruce, director of global investments, at PanAgora Asset Management. "The market has traded down for months. People have been uncertain about what the impact of war would be. If war drags out, companies won't want to spend, people won't want to spend, and people won't want to travel. That's not good for the economy."

In international markets, Japan's Nikkei stock average was up 1.7 percent as trade resumed in the afternoon, paring earlier gains after the widely anticipated war in Iraq began during Tokyo's midday break.

The Nikkei average was up 136.39 points at 8,187.43 when the afternoon session began at 12:30 p.m. (0330 GMT).

"It appears like a confused start," said John Davidson, president and CEO of PartnerRe Asset Management. "The interesting thing is that it looks like Asian stocks were rising and Treasuries declining. That is consistent with what we have been seeing in the past week."

The initial market reaction to the Bush announcement saw equities higher and bonds lower, but many events can send markets in different directions, he said.

"If you see weapons of mass destruction or destruction of oil fields, that would be negative for the market," Davidson said. "If this is short, then there will be a lot of money coming into market. But I would think that the rally will be short-lived unless there is continued success and if economic activity picks up to support higher levels."

During Wednesday's session, blue-chip stocks extended a rally to six days as the deadline for war in Iraq loomed and investors bet on a quick end, but technology issues fell on weak software sales from Oracle Corp. .

The broad Standard and Poor's 500 index rose 7.57 points, or 0.9 percent, to 874.02. The blue-chip Dow Jones industrial average rose 71.22 points, or 0.9 percent, to 8,265.45. The tech-laced Nasdaq Composite Index lost 3.47 points, or 0.3 percent, to 1,397.08.

The Dow has surged nearly 10 percent in the past week on hopes for a short war, but worries remain about risks such as Iraq setting oil wells afire, attacks on the United States or a U.S. invasion getting bogged down. Now, investors are shying away from making big bets.

"Barring any unforeseen circumstances, they should be able to get this thing over with in several days," said Jim Volk, managing director of equity trading at D.A. Davidson and Co. in Portland, Oregon. "The market rallied 70 points this afternoon after they bombed some missile sites."

"But people who are buying stocks in anticipation of an early end to the war are not really looking at the broader picture," Volk said. He cited high unemployment, low economic growth, deteriorating consumer confidence and no capital expenditures as reasons for concern about the economy. (Additional reporting by Denise Duclaux, Herb Lash, Brendan Intindola)