U.S. MARKET AVERAGES

Stocks started trading below the flat line Friday morning as lower-than-expected earnings outlook from Dow component Pfizer raised concerns about lower overall corporate profits for 2006 and the Department of Commerce released a new record for the U.S. trade deficit.

Pfizer (PFE: chart) projected flat sales for 2006 due to a loss of patent protection on some of its top-selling drugs. The company forecast full-year earnings of $2 per share, below analysts' estimates of $2.03 per share.

In economic news, the Commerce Department said that trade deficit widened to $65.7 billion in December from an upwardly revised $64.7 billion in November and reached a record $725.8 billion in 2005. It's the fourth straight record annual deficit, and with rising energy prices worldwide, investors worried that higher import prices could spark domestic inflation.

Energy stocks posted modest advance in the early going, regaining a small portion of Thursday's slide. Utility stocks also moved to the upside, with the Dow Jones Utilities Index up nearly 1%.

The gold sector was an early decliner, falling by 1.5%. The semiconductor sector declined yesterday and pushed further down in Friday's early session to lose about 1%. The disk drive sector was another notable mover to the downside. Housing and biotech stocks also stood out among decliners.

In the first hour of trading, the Dow Jones industrial average fell 8.48, or 0.08%. The Standard & Poor''s 500 index slid 1.31, or 0.1%, and the Nasdaq composite index dropped 5.88, or 0.26%.

Bonds moved higher as investors hedged against economic uncertainty, with the yield on the 10-year Treasury note falling to 4.51% from 4.55% late Thursday.

MOVERS AND SHAKERS

Pfizer Inc (PFE: chart), drug company, projected earnings of $1.52 to $1.56 a share for 2006, and adjusted earnings, excluding special items of about $2 a share. The Dow component anticipates revenue for 2006 will be comparable to its 2005 total of $51.3 billion. The current average estimate of analysts is for a profit of $2.04 a share for 2006 on revenue of $51.58 billion. The company’s shares fell 3.3%.

Atari Inc (ATAR: chart), video game company, reported Q3 net loss of $4.76 million, or 4 cents a share vs. net earnings of $19.6 million, or 16 cents a share a year ago, missing estimates of 17 cents a share. Revenue fell 36% to $100.8 million from $156.4 million last year. The stock dropped 19%.

Phelps Dodge (PD: chart) dropped 5% after it was downgraded at Prudential Equity Group to neutral weight from overweight.

Cisco Systems (CSCO: chart), networking company, plans to sell $5.5 billion of senior unsecured notes, the proceeds of which the company will use to fund its proposed acquisition of Scientific-Atlanta and other general corporate purposes. Cisco’s share gained 1%.

Aon Corp (AON: chart), insurance company, posted Q4 net income of $224 million, or 65 cents a share, compared with $81 million, or 24 cents a share last year. Quarterly revenue was $2.53 billion, compared with $2.6 billion last year, missing expectations of $2.61 billion. The company expects cumulative pretax charges of $262 million in connection with its previously announced 3-year restructuring plan. The stock rose 7.3%.

ECONOMIC NEWS

Friday morning, the Department of Commerce released its report on the U.S. trade deficit in the month of December. The report showed that the trade deficit widened more than economists had been expecting and reached a record high for the full year.

The Commerce Dept. said that the trade deficit widened to $65.7 billion in December from an upwardly revised $64.7 billion in November. Economists had been expecting the deficit to widen to $65.0 billion from the $64.2 billion originally reported for the previous month.

The wider trade deficit came as the value of both imports and exports increased in December. The report showed that imports rose 1.9 percent to $177.2 billion while exports rose 2.1 percent to $111.5 billion.

With the increase in December, the trade deficit for 2005 reached an all-time high of $725.8 billion, up 17.5 percent from the previous record of $617.6 billion set in 2004. The increase came as a 12.9 percent increase in imports outpaced a 5.7 percent increase in exports.

The Commerce Dept. noted that the trade deficit as a percentage of U.S. gross domestic product rose to 5.8 percent in 2005 from 5.3 percent in 2004.