Roger Conrad has shown a particularly strong aptitude in selecting small bank takeovers; in fact, in Personal Finance, he featured a list of six favored small banks in early 2004 and since then, 4 of the 6 have been acquired.

Now, he again turns his eye toward the sector to find an additional list of small bank stocks, that are recommended for their growth potential – as well as the extra kicker of potentially becoming a future takeover target. He explains, "It's time to look at small bank stocks again. Even though deposit rates have risen along with short-term rates, returns on the loans and other assets they depend on -- which move with longer-term rates -- haven't kept up.

"At the same time, higher short rates have increased default risk and the nonperforming assets on their books. As a result, many of these stocks have taken a pause in what have been multi-year runs. Valuations have contracted, yields have risen and many shares are again back on the bargain rack." Conrad uses nine criteria to select bank stocks:

U.S. stock-index futures dropped early morning, indicating a similar start in the stock markets as investors show their concern ahead of several economic reports including housing market and prices data. Microsoft reporting weaker than expected sales is also affecting sentiment.

After the National Association of Realtors reported the biggest drop in prices in the fourth quarter and National Association of Home Builders reported higher confidence level in February, today's housing figures will be in focus. At 8:30 a.m. before the open, January housing starts and building permit are due. Housing starts are forecast to come in at a 1.6 million annual pace, lower than the 1.642 million pace measured in December and nearly 30% lower than the year ago figure. Building permits are also expected to decline to a rate of 1.59 million from 1.613 million the month before.

Also due at 8:30 a.m. this morning is January prices at the wholesale level. The producer price index, a measure of inflation, is generally expected to have declined 0.6% compared to 0.9% increase in December. Core PPI, excluding food and energy, is forecast to gain 0.2%, same as the month before.

Finally, at 10:00 a.m., January leading indicator and February Michigan sentiment index are also due.

Crude oil prices dipped today on forecasts for warmer weather in the U.S. northeast and news that while OPEC output had indeed dropped, it was still above agreed cutbacks.

Growth in the U.S. is predicted to be 2.5% this quarter according to economists surveyed by Bloomberg. The European Commission raised its forecast for economic growth to 2.4% this year due to declining unemployment and accelerating expansion in the U.S. boosts confidence.

In corporate news:

Microsoft Corp. (NASDAQ:MSFT) shares are down 1.25% in pre-market after CEO Steve Ballmer told analysts yesterday their revenue forecast from Windows Vista are too aggressive. MSFT shares have declined as much as 1.7% in after-hours trading yesterday.

According to Business Week, AMR Corp. (NYSE:AMR), parent company of American Airlines, might be a buyout target of a group including Goldman Sachs Group, Inc. (NYSE:GS) and British Airways Plc (NYSE:BAB) with a bid between $9.8 billion, or $46 a share, and $11.1 billion, or $52 a share. AMR shares are gaining 7.3% in pre-market trading.

Compass Bancshares Inc. (NASDAQ:CBSS) is being purchased by Spain-based Banco Bilbao Vizcaya Argentaria S.A. (NYSE:BBV) for $4.6 billion in cash and about 196 million shares of Banco Bilbao common stock.

The Coca-Cola Co. (NYSE:KO) and PepsiCo Inc. (NYSE:PEP) were both were upgraded to buy from neutral at Goldman Sachs. KO shares are up 1.15% in pre-market.

Colgate-Palmolive Co. (NYSE:CL) shares are gaining over 1% in pre-market following an upgrade by Banc of America to Buy from Neutral.