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RTRS; US STOCKS-Higher open seen on bank deal, bailout hope
 
By Ellis Mnyandu

NEW YORK, Oct 3 (Reuters) - U.S. stocks headed for a higher open on Friday, with financial shares poised to lead gains after Wells Fargo (WFC.N: Quote, Profile, Research, Stock Buzz) agreed to buy embattled bank Wachovia Corp (WB.N: Quote, Profile, Research, Stock Buzz) for $15 billion.

Expectations that the House of Representatives will approve a proposed $700 billion bailout to stabilize the U.S. financial sector overshadowed government data showing the number of U.S. jobs lost in September was the greatest in 5-1/2 years.

The deal between Wells-Fargo, one of the strongest U.S. banks left, and Wachovia scuppered a previously announced deal for Citigroup (C.N: Quote, Profile, Research, Stock Buzz) to buy parts of Wachovia.

Shares of Wachovia jumped 74 percent to $6.83 before the bell, while the U.S. electronic traded fund that tracks the financial sector XLF.A rose 2.4 percent. But shares of Citigroup declined 13.3 percent to $19.50.

"Realistically, the focus is on the Wells Fargo-Wachovia deal. (Treasury Secretary Henry) Paulson's been saying all along he wanted to get private markets involved again," said Justin Wiggs, equities trader at Stifel Nicolaus Capital Markets in Baltimore.

"Also, all indications suggest (the bailout bill) is gaining speed in the House, which is important, because if it doesn't pass, it could get ugly."

S&P 500 futures SPc1 rose 7.10 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures DJc1 climbed 63 points and Nasdaq 100 NDc1 futures gained 8.50 points.

A vote in the House on the bailout bill is expected later on Friday.

The Labor Department said employers cut payrolls, slashing an unexpectedly large 159,000 jobs as employment contracted for a ninth straight month, suggesting the economy may be in recession. The unemployment rate was unchanged from August at 6.1 percent, the highest rate in five years.

The global lending market remained strained by the persistent lack of confidence, with lenders hoarding cash.

The planned Wachovia-Wells Fargo tie up would end a previously announced deal in which Citigroup was to buy banking operations of Wachovia in a deal supervised by the Federal Deposit Insurance Corp. (FDIC) that included assistance from the government. (Additional reporting by Steven C Johnson; Editing by Kenneth Barry)

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