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Wall Street expected to slip as war unfolds

(Updates futures, adds comment, economic data)

By Denise Duclaux

NEW YORK, March 20 (Reuters) - Wall Street is seen dipping at Thursday's open after six straight sessions of gains in the blue-chip Dow, as skittish investors scour headlines to see how the hours-old U.S.-led war on Iraq is unfolding.

"Now that the bullets have actually been flying, the market should feel a little pressure," said Burton Schlichter, senior market analyst with Lind-Waldock & Co., a division of Refco LLC, as equity futures pointed to a soft start.

U.S. President George W. Bush unleashed a war to topple Saddam Hussein with dawn air strikes on Baghdad, but the Iraqi leader denounced the "criminal Bush" and Iraq fired missiles at Kuwait. Bush said "selected targets" were hit, and U.S. officials said an all-out air and ground offensive might be days away.

Bush said the U.S. military would seek a swift victory but warned the war may be "longer and more difficult than some predict." Widespread hopes the war will be brief and leave the U.S. economy relatively unscathed have added a hefty 741 points to the blue-chip Dow over the last six sessions.

"One of the reasons that we rallied over the last few days was that the market expected a quick resolution to the war," Schlichter said. "But the longer they string out this fight, I think there will be added pressure to the market."

The New York Stock Exchange said it will observe two minutes of silence beginning at 9:30 a.m. in support of U.S. and allied troops participating in the assault. Trading will begin at 9:32 a.m.

GLOBAL MARKETS FIXATED ON WAR

Equity futures weakened shortly before the opening bell and pointed to a weak start on Wall Street. The June futures for the Standard & Poor's 500 fell 4.20 points to 868.50. Futures for the Nasdaq 100 eased 7 points to 1,069, while futures for the Dow Jones Industrials lost 40 points to 8,200. The Nasdaq 100 pre-market indicator dropped 0.51 percent.

Worries remain that Saddam may torch oil fields, U.S. forces could get bogged down or the war will spark terror attacks on the United States as anti-American sentiment rises. Some market watchers warn that the even without the threat of war, the nation's economic recovery is lackluster.

Government data before the open showed that the total number of new U.S. unemployment insurance claims fell for the second straight week, but a more reliable barometer of labor market trends rose to its highest level in more than 10 months.

The Labor Department said claims fell to 421,000 in the March 15 week from a revised 425,000 for the prior week and in line with Wall Street economists' forecasts of 420,000.

Investors across the world watched the opening salvo of war in Iraq and worried about how long the conflict would last, leaving many financial markets in a holding pattern ahead of a broader U.S.-led offensive.

European blue chips were mixed after early attempts at a rally were stunted by news Iraqi missiles had hit northern Kuwait and as Iraqi officials said civilians were wounded in U.S. air strikes on Baghdad.

Oil prices were lower but well off their earlier losses of more than a $1 a barrel. Dealers are betting on a swift U.S. victory with little disruption to Middle East supply.

TRAVEL STOCKS TO GRAB ATTENTION

Airline stocks could be in focus. The attack on Iraq left U.S. airlines, already reeling from their worst downturn ever, calculating the cost of a further loss of business as travelers canceled international flight plans.

U.S. hotels and resorts have prepared for a quick downturn in business with the start of war in Iraq by making plans to cut some services without shutting down. Walt Disney Co. is prepared to run fewer shows at its theme parks and cut park hours a bit if needed.

Shortly after the start of trading, investors will get the U.S. index of leading economic indicators. The leading indicators are seen falling 0.4 percent in February.

Later, the Philadelphia Federal Reserve survey is on the table, one of the first readings on manufacturing in the region each month.

The broad Standard and Poor's 500 index .SPX> rose 7.57 points, or 0.9 percent, to 874.02 on Wednesday. The blue-chip Dow Jones industrial average .DJI> rose 71.22 points, or 0.9 percent, to 8,265.45. The tech-laced Nasdaq Composite Index .IXIC> lost 3.47 points, or 0.3 percent, to 1,397.08. (With additional reporting by Doris Frankel)