Stock Market Update - Thursday, September 30, 2010 Upward Trend Outlook

Stock Market Update
Thursday, September 30, 2010

Latest US News Headlines:

04:00 PM ET US Index Snapshot: 

Dow Jones	10,788.05	-47.23	(0.44%)
S&P 500	1,141.20	-3.53	(0.31%)
Nasdaq	2,368.62	-7.94	(0.33%)

Dow Jones 11:00 AM Averages: DJIA 10,852.61 UP 17.33
  30 INDUS     10,852.61 UP   17.33 OR    0.16%
  20 TRANSP     4,554.35 UP   10.38 OR    0.23%
  15 UTILS        400.20 UP    0.81 OR    0.20%
  65 STOCKS     3,758.66 UP    7.05 OR    0.19%

US Stocks Turn Negative As Technology Weakens; DJIA Off 4
Dow Jones 10,820.90     -14.38     (-0.13%)
S&P 500 1,143.46     -1.27     (-0.11%)
Nasdaq  2,365.62     -10.94     (-0.46%)

US Commodities:
Crude Oil     80.05     + 2.81%
Natural Gas     3.87     - 2.25%
Gasoline     2.05     + 2.86%
Heating Oil     2.25     + 2.80%
Gold     1309.26     - 0.06%
Silver     21.81     - 0.46%
Copper     3.65     - 0.16%


US Dollar makes Minor Gain, US Market Declines
Dollar Futures Index DXY, Day's Range: 78.41 - 78.99, Now 78.93 +0.24

The U.S. dollar weakened against the yen but strengthened against the euro. Demand for Treasurys declined, pushing the yield on the 10-year note up to 2.53%. Gold futures took a pause from their recent surge while crude-oil futures rose above $79 a barrel. U.S. stocks sank mid-day Thursday as investors who have already reaped the benefit of the market's best September in 71 years retreated ahead of key data later in the week.

The Dow Jones Industrial Average was recently down 65 points, or 0.6%, to 10770 on Thursday, the final day of the third quarter. The Dow has climbed more than 10% this quarter, buoyed by the strongest September rally since 1939. This month alone, the measure has surged 7.6%, with monthly gains in all of its 30 components. The Nasdaq Composite fell 0.7% to 2360. The Standard & Poor' 500-share index eased 0.5% to 1140.

The market paused from that rally on Thursday as investors treaded cautiously ahead of a new month and a new quarter that will kick off Friday with manufacturing data from the Institute for Supply Management. Encouraging economic data earlier Thursday had sent stocks surging higher.
Technology and materials sectors led the decline. Investors worried that U.S. House lawmakers' approval of legislation targeting China's currency policy could make it harder for materials and other multi-national companies to do business there.

"One way the Chinese can put pressure on the U.S. is making an inhospitable business environment in China," Moses said.

Caterpillar led the Dow's declines, falling 1.8%. Johnson & Johnson was also weak, shedding 1.2% after federal regulators said the health-care company should have moved sooner to recall some Motrin pills the company discovered were defective in late 2008.

Thursday's round of U.S. economic data was largely positive. Weekly jobless claims fell by more than expected and the government revised upward slightly its estimate of growth in second-quarter gross domestic product. The closely watched Chicago purchasing managers' index was 60.4 in September, higher than the 56.0 reading expected by economists. But a manufacturing report from the Federal Reserve Bank of Kansas City's district showed that, while there was improvement from August, conditions are still weak, especially when it comes to employment.

Nick Kalivas, strategist and vice president of financial research at MF Global, noted that Thursday's decline seems natural following such strong gains this month. September's surge brought the benchmark indexes into the black for the year. The Dow is now up 3.4% year to date. Of the previous 68 years when the measure was up after three quarters, it continued to rise 71% of the time and ended the year in the black 94% of those years.

US NATURAL GAS DROPPED:
Natural Gas Futures Fall As Storage Report Adds To Oversupply

Natural gas futures slid Thursday after a report showed U.S. gas stockpiles last week increased by more than expected, adding to ongoing concerns about the supply overhang that has pressured prices lower for much of this year.

Natural gas for November delivery settled down 9 cents, or 2.3%, to $3.872 a million British thermal units on the New York Mercantile Exchange.

The Energy Information Administration said Thursday natural gas inventories grew by 74 billion cubic feet last week, more than the consensus estimate of a 69-bcf build.
Natural gas in U.S. storage for the week ended Sept. 24 stood at 3.414 trillion cubic feet, 6.3% above the five-year average, and 4.6% below last year's figure. The week's injection was above both the five-year average increase of 67 bcf and last year's 65-bcf increase. Market participants pay close attention to these reports because they provide an indicator of balance between gas supplies and demand.

Futures have been bound between about $3.75/MMBtu and $4.05/MMBtu in recent weeks while traders weigh whether the typical seasonal rally is imminent or if high stockpiles will keep a lid on prices. Natural gas typically reaches a seasonal bottom in August or September before rising on expectations of coming winter heating demand.



US JUNK BOND RALLY CONTINUES
Junk bonds continued their remarkable rally in the third quarter and show few signs of slowing despite an 18-month-long bull run that has pushed the average bond price above 100 cents on the dollar.

As yields fell, speculative-grade corporate borrowers sold a record $70.7 billion in junk bonds in the three months ending Thursday, according to data provider Dealogic. With three months remaining this year, companies already have sold $189.9 billion of high-yield bonds in the U.S., easily surpassing the previous full-year high of $163.6 billion in 2009.

The high-yield market posted a gaudy 6.5% return in the third quarter, according to the Merrill Lynch High Yield Master II Index. The market has risen 11.5% so far this year, following a 57.4% gain in 2009.Despite the magnitude of the run-up, many market participants are just as bullish on the fourth quarter, as low rates plague other fixed-income areas and continue to steer investors toward riskier corporate bonds.

 With yields on Treasurys and investment-grade bonds touching historic lows, investors in mutual funds focused on high-yield debt have poured another $7 billion into the market since early July, according to Lipper FMI, a unit of Thomson Reuters.

Market participants point out that in the current environment high-yield bonds appeal to a variety of different investor groups, from total return investors to yield-oriented investors to relative value investors.

The steady demand has bid up the high-yield market so that the average junk bond now trades above par, or face value, at 100.63 cents on the dollar, according to Merrill Lynch. Yields, which move inversely to prices, are down to 7.7%, the lowest since the credit market peak in June 2007.

As a result, the earnings-per-share yield on the S&P 500 stock index is as high as the high-yield bond index yield for the first time ever, Bank of America Merrill Lynch noted. In theory, that means that investors ascribe a similar risk to stocks at this point as they do to junk bonds.

"It's been a bumpy recovery, and that's not great for equities," said Ty Anderson, head of high-yield strategies at DB Advisors. He added that stocks are "much riskier" than high-yield bonds in the event a firm goes bust.

Average high-yield risk premiums--the added return that investors demand to own corporate debt instead of virtually risk-free Treasury securities--is 6.29 percentage points, according to Merrill Lynch. That is about one-half a percentage point higher than their historical average.

Current ultra-low "all-in" yields--total returns to investors--are largely the result of rock-bottom Treasury rates, and any increase in rates could be offset by a further drop in risk premiums.

It's no wonder then that speculative-grade companies, which need to keep ahead of an encroaching wall of maturing debt in the next few years, keep churning out new bonds at these rates and will likely continue to do so through the end of the year and beyond.

"We have solid and improving fundamentals, and default rates--the most important fundamental factor in high yield--continue to decline," Bank of America's Cokinos said.

Considering the Federal Reserve's efforts to stimulate the economy and a rising tide of leveraged buyouts and mergers, Cokinos added, "the outlook for credit is very strong."



US TREASURY SELLS $2.3 TRILLION IN DEBT IN FY10

In the fiscal year ending Thursday, the Treasury sells a record amount of notes and bonds, including securities whose value is linked to the outlook for inflation, but the massive debt load was easily absorbed due to voracious demand, Min Zeng writes.



US AUTO SALES SEEN FLAT

US New Auto Sales 'Leveled Off' After a strong start, U.S. new vehicle sales "leveled off" in the last week of September, according to J.D. Power & Associates, with the seasonally adjusted annualized rate, or SAAR, expected to come in below the researcher's expectation from a week ago.

  Analysts have expressed concern about the stagnation of the auto industry, which despite some new car introductions, has struggled to significantly lift the current sales rate.

For total sales, the SAAR is expected to come in at about 11.5 million units in September, with fleet sales accounting for 20% of the month's sales. That estimate is under J.D. Power's prior estimate of 11.8 million units, but is still above August's 11.4 million and the 9.2 million rate a year ago. Sales are expected to jump as the industry struggled a year ago after the government's "Cash for Clunkers" program concluded.

Auto makers report sales for September on Friday.

"Consumers continue to grapple with high unemployment levels, a weak housing market and higher vehicle prices," said Jeff Schuster, a forecasting director at J.D. Power. "However, even with the weaker-than-expected close to September, retail volume has improved from recent levels and the recovery continues to progress slowly."

J.D. Power expects the retail annual selling rate to be about 9.4 million units for September, below its earlier 9.7 million estimate. The researcher said retail transactions are a more accurate measurement of true underlying consumer demand for new vehicles.

The higher projections were based on strength early in the month, which J.D. Power attributed to buyers delaying some of their purchases in late August, most likely waiting for Labor Day sales and hoping for increases in vehicle availability. J.D. Power said at the time that the industry was focused on economic indicators to gauge the level of recovery--echoing comments made by auto executives in recent months.

Last week, car-shopping website Edmunds.com said it expected the six top U.S. auto makers to report higher sales from a year ago, saying total sales should rise 28%.


US POSTAL SERVICE - DENIED ANOTHER PRICE INCREASE BY REGULATORS
US Postal Service Denied In Request To Raise Prices

Postal regulators Thursday denied a request by the U.S. Postal Service to increase rates in January beyond the rate of inflation, ruling that the agency's recent financial problems were caused by a flawed business model and not the recent recession, the Washington Post reports on a blog.

The decision by the Postal Regulatory Commission means -- for now at least -- that stamp prices and other postage rates won't go up on Jan. 1 as the USPS had sought. The changes would have included raising the price of mailing a letter to 46 cents from 44 cents.

In July, the USPS asked for the right to raise rates on first-class mail, periodicals and other services beyond the rate of inflation. A 2006 law allows the service to seek to increase prices beyond the inflation rate if it can prove "exceptional or extraordinary circumstances" warrant the increase.



SALES OF US HOMES IN FORECLOSURE RISE IN 2Q

RealtyTrac says houses in some stage of foreclosure accounted for 24% of all residential home sales in the 2Q, down from the previous quarter, in what could be a temporary dip because of tax-credit effects.



US Mortgage Rates Fall
U.S. mortgage rates fell in the latest week, with the average rates on the 30-year fixed matching a record low and two other loans setting a fresh nadir, according to Freddie Mac's (FMCC) weekly survey.

Confidence in the state of the economy fell among consumers and businesses, which led to a decline in long-term bond yields and brought many mortgage rates to record lows this week.

Rates have slumped for months, setting record lows in the process, as yields on Treasurys slid due to economic uncertainty. They have begun to retreat again, putting in reverse an increase that began at the end of August. Mortgage rates generally track the yields, which move inversely to Treasury prices.

The 30-year fixed-rate mortgage averaged 4.32% for the week ended Thursday, matching a record low set a month ago. The average is down from the prior week's 4.37% average and 4.94% a year ago.

Rates on 15-year fixed-rate mortgages were 3.75%, down from 3.82% in the previous week and 4.36% a year earlier. It sits at the lowest point since Freddie started tracking such loans in 1991.

Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 3.52%, down slightly from the prior week's 3.54% and down from 4.42% a year earlier. They are at the lowest point since Freddie started tracking them in 2005. One-year Treasury-indexed ARMs were 3.48%, up from 3.46% and down from 4.49%, respectively.

To obtain the rates, the 15-year fixed-rate and one-year adjustable mortgages required payment of an average 0.7 point, while the 30-year required a 0.8 point and the five-year required a 0.6 point. A point is 1% of the mortgage amount, charged as prepaid interest.


US STOCKS DIP ON JITTERS AHEAD OF ISM DATA
Stocks fall into the red in the final session of the market's best September in 71 years as investors get jittery ahead of a key manufacturing report due to kick off the fourth quarter Friday.


AIG AGREES ON TERMS OF US EXIT PLAN

AIG and its U.S. government overseers have agreed in principle on a plan that would speed up repayment of the giant insurer's taxpayer debt and pave the way for the U.S. to exit its ownership of the rescued company.


US Dollar Declines- US Stocks Higher, Boosted By Jobs Data, GDP Revision

The U.S. dollar weakened against both the euro and the yen. U.S. stocks opened higher on the final day of the best September in 71 years, boosted by encouraging jobs data and a slightly higher revision of second-quarter U.S. growth.

The Dow Jones Industrial Average added 55 points, or 0.5%, to 10890 on Thursday, the final day of the third quarter. The Dow has climbed nearly 11% this quarter, buoyed by the strongest September rally since 1939. This month alone, the measure has surged 8.8%, with monthly gains in all of its 30 components, while the Standard & Poor's 500-share index has jumped 9.7% as fears over a double-dip recession eased.

September's surge brought the benchmark indexes into the black for the year. The Dow is now up 4.5% year-to-date. Of the previous 68 years when the measure was up after three quarters, it continued to rise 71% of the time and ended the year in the black 94% of those years.

On Thursday, all but one of the Dow's components climbed. Only Caterpillar edged down 0.4%, though the company has been the measure's strongest performer in the third quarter, climbing 33%.

The Nasdaq Composite recently gained 0.7% to 2392. The S&P 500 climbed 1% to 1156, led by its energy sector, as crude-oil prices rose above $79 a barrel.

Encouraging U.S. jobs data helped boost the sectors most closely tied to the U.S. economy. Industrial and consumer-discretionary sectors rose after the number of U.S. workers filing new claims for jobless benefits dropped more than expected last week, falling by 16,000 to 453,000 in the week ended Sept. 25, the Labor Department said Thursday. Economists polled by Dow Jones Newswires had predicted new claims would fall by only 5,000.

Separately, the Commerce Department said in its third estimate that gross domestic product grew at a 1.7% annual rate April through June. Economists surveyed by Dow Jones Newswires expected the final estimate would show no change from the second estimate a month ago, of 1.6% growth.

However, European sovereign debt concerns re-emerged after Moody's Investors Service downgraded Spain's credit rating and the Central Bank of Ireland outlined the costs of rescuing its troubled banking sector, including the nationalized Anglo Irish Bank. Shares of Allied Irish Banks, which will need to raise an additional EUR3 billion ($4.1 billion), fell 18%.

More encouragingly, Germany said the number of its unemployed declined in September. The Stoxx 600 index was up 0.5% in recent trading.

Shares of American International Group rose 6.3% after the company explained how it will repay the U.S. government for the massive bailout it received during the financial crisis. The Federal Reserve Bank of New York will be fully repaid, while U.S. Treasury holdings will be exchanged for AIG common stock, the insurer said. Separately, AIG announced an agreement to sell two units in Japan to Prudential Financial in a deal valued at $4.8 billion.

The U.S. dollar weakened against both the euro and the yen. Demand for Treasurys declined, pushing yield on the 10-year note up to 2.53%. Gold futures continued to climb.

Later in the day, Federal Reserve Chairman Ben Bernanke will testify on financial regulatory overhaul in Washington.


US BOND HOLDERS MAY BE AT RISK
Huge Flaw in Municipal Bond Assumptions

Everyone plowing into municipal bonds on the assumption the federal government will bail out the states may have another thing coming says Herbert Gold at Institutional Risk Analyst.

Back in August, the U.S. House of Representatives took a break from its recess to pass legislation giving $26 billion to the States for education and healthcare. This $26 billion is a stealth bailout for States on the verge of default. As such it is a band-aid that prolongs the crisis while sending a false signal to the markets. In the event of a State default Washington will not rescue the States.

The municipal debt crisis is well known. California by some measures has the world's 8th largest economy, yet it faces the prospect of once again issuing IOUs to its creditors as its government continues to struggle to pay its bills. Illinois, America's fifth most populous state, is running nearly half a year behind on meeting many of its obligations. New York and New Jersey, the latter despite some bold political moves by Governor Chris Christie, are similarly situated. Indeed, according to the Center on Budget and Policy Priorities only four states have avoided budget shortfalls this year.

Despite these conditions the market for State debt remains placid. Municipal securities continue to trade at favorable rates even though the larger economy has shown no solid signs of meaningful growth. The reason for this lies both in the fact that States historically don't default, and the belief that Washington will provide funding in the event of a true crisis.

The market continues to assume the federal government would not let a big issuer like California default. But this theory has a huge flaw: absent a vote from Congress there is no easy mechanism for the federal government to rescue the States. And after the political backlash from the TARP vote it is safe to say Congress will be loathe to issue any more blank checks to bail out the states.

It's unlikely the Fed would be inclined to bailout a State in distress given the political backlash the institution would face after another open-ended program that told the world (yet again) the US was ready to simply print its way out of its problems.

The market remains convinced that, in the worst-case scenario, Congress would not risk the disruption that would follow a State default. But countering this idea is the role federalism plays in our political system as well as an appreciation of the damage done to politicians who supported TARP.

Senator Bob Bennett (R-UT), a highly respected member of the Senate, was unceremoniously dropped from the ballot in the Republican primary in Utah in large part because of his vote on TARP. At least five other sitting officeholders have lost in their own party primary this year for the same reason, to say nothing of the large- scale losses likely to occur this November. Any politician interested in keeping his or her job would be very wary of voting for a State bailout. And this does not account for the role the States play in America's governing system. Ask a citizen of Oregon to bailout California, or a citizen of Michigan to bailout Illinois, and you are likely to get the same cold silence.

Treasury prefers to allow Illinois to borrow at low rates for as long as possible in the hope that somehow they will stumble through this crisis. From Treasury's perspective it is a free option, but the real price of this false confidence will only become clear after it is too late.

The genius of the American system is its flexibility, allowing States to be responsible for their own governance and finances. If some must bear the burden for reckless spending it should be the citizens of those States. Washington won't bail out the States and the market should be prepared for defaults. But just remember that it won't be the first time that an American state has defaulted on its debt.

Financial Reform Act Impacts

There is more in the article including an analysis of how the Dodd-Frank Wall Street Reform and Consumer Protection Act ended the Treasury's authority to bail out the states and how President Obama and Treasury Secretary Tim Geithner may rue this decision.

If so, that revision may be the only worthwhile thing in the entire bill.

Unfortunately, I think Congress will try to "do something", they always do. However, I am equally convinced severe austerity measures are on the way to more than a handful of states. If so, none of this is factored into lofty stock market valuations, and equally absurd valuations of municipal bonds.

Harrisburg, Pennsylvania Explores Bankruptcy

I have commented on this before but it finally appears the bankruptcy writing is on the wall for Harrisburg. Bloomberg reports Harrisburg, Pennsylvania, Council Votes to Explore Bankruptcy


IMF VOWS MORE POVERTY AHEAD WORLDWIDE AS UNEMPLOYMENT SOARS
Fiscal Tightening Likely To Cut Growth, Raise Unemployment

Fiscal tightening is likely to cut growth and raise unemployment, the International Monetary Fund warned Thursday, a day after antiausterity protests rocked Europe.

  The IMF, responding to economic analysis that projected growth spurts under fiscal consolidation, said it's important to have realistic expectations while supporting the tightening as economically-essential to ax bloated sovereign debt levels and outsize budgets.

  "We shouldn't kid ourselves, in the short term, tax hikes and spending cuts are going to probably reduce growth and raise the unemployment rate," said Daniel Leigh, a principal author of a World Economic Outlook chapter on the subject.

  Across Europe, from Ireland to Portugal, questions have been raised about the timeliness of austerity measures as the countries experience weak growth and high joblessness.

  Furthermore, with key interest rates near zero, as they are in many advanced countries, the costs to the economy are likely to be greater than in previous crises. Compounding the problem is combined austerity across Western Europe and the U.S.

  "Out simulations, with interest rates being near zero and everybody doing it together, show that it could more than double the costs that we've seen in the past in the short term," Leigh said.

  Historically, central banks have been able to cushion the impact of consolidation on the economy by cutting interest rates, but there's little room for easing with rates near zero now.

  Governments can shield the recovery and lower long-term costs by legislating new measures such as linking the retirement age to life expectancy and making entitlement programs more efficient.

  The IMF did have some positive news for the ailing U.S. and Western Europe economies, however, showing that imports usually remain muted for years after a financial crisis.

  Although trade has been recovering in countries such as China, which didn't experience the same type of financial crisis as in the West, demand for international products has grown much more slowly in the U.S. and Europe.

  Abdul de Guia Abiad, a principal author of the IMF study on trade, said imports tend to stay 10% below normal even five years after the crisis.

  Recovery of import demand in the west is likely to be "pretty subdued and anemic over the coming years, even more than suggested by their tempered output projects," he said.

  Given that exports are largely unaffected by financial crises, de Guia Abiad said the IMF study suggests the narrowing of the current account deficits seen in 2009 will likely prove long-lasting.

  That increases the urgency for trading partners such as China and India to lessen their dependence on external demand and strengthen domestic sources of growth, he said.


Chicago Business Barometer Shows Rebound
U.S. economic activity was stronger-than-expected during September, as a closely-scrutinized survey of Chicago area purchasing managers suggests the Federal Reserve might not have to enact more aggressive stimulus measures to aid the economy.

 The Institute for Supply Management-Chicago said Thursday its Chicago Business Barometer climbed to 60.4, from 56.7 in August.

The report's findings were better than the market expected, as economists queried by Dow Jones Newswires forecast a September reading of 56.0.

The latest data marked 12 straight months of economic expansion as the nation tries to recover from the worst economic slowdown since the Great Depression. Index readings above 50.0 reflect economic growth, while sub-50 readings indicate contraction in the economy.

Table Of Data From US Chicago Purchasing Managers' Report

.
                         Seasonally Adjusted Indexes

                     Sep   Aug    Jly    Jun    May   Apr
Business Index       60.4  56.7   62.3   59.1  59.7  63.8
Production           64.3  57.6   65.0   64.2  61.0  63.1
New Orders           61.4  55.0   64.6   59.1  62.7  65.2
Order Backlogs       49.1  56.2   57.6   50.7  52.7  61.4
Inventories          49.5  46.5   50.8   46.5  56.4  50.1
Employment           53.4  55.5   56.6   54.2  49.2  57.2
Supplier Deliveries  58.4  61.2   59.4   60.7  65.1  64.9
Prices Paid          55.0  57.2   58.1   61.9  64.0  71.4




Dow Jones Economic Sentiment Indicator Sharp Fall in September

The Dow Jones Economic Sentiment Indicator showed a sharp fall in September, flashing a warning signal about a possible reversal in the faltering recovery. The fall to 40.7 from 42.3 in August is the biggest decline since October 2008, the aftermath of the collapse of Lehman Brothers.

The sentiment was particularly poor in the last week of the month, which was unusual as the indicator rarely makes large short-term moves. Dow Jones Newswires "Money Talks" columnist Alen Mattich said: "Were this trend to continue over the coming weeks, it would signal a sharply increasing risk of a double dip for the U.S. economy."

Mattich noted that September is often a gloomy month for economic news, with the indicator dropping typically two percentage points in September. However, the fall in the last week suggests this dip is more than a seasonal effect.

Other consumer confidence data has been mixed. Earlier this week the ABC News survey of consumer confidence showed an improvement over the previous week, while the monthly data from The Conference Board fell to its lowest level since February 2010, a dip greater than predicted by economists.

Among the straws in the wind pushing down the Dow Jones Economic Sentiment Indicator this month: tight budgets delaying major improvements in Chicago's transit system; police chiefs meeting to discuss tighter budgets; good earnings from discounter Family Dollar Stores Inc (FDO) as middle class shoppers feel the pinch; and a slew of stories nationwide about home foreclosures and the unemployed having no luck finding news jobs.

The Dow Jones ESI aims to predict the health of the economy by analyzing the contents of 15 major daily American newspapers, using a proprietary algorithm to look for positive and negative sentiment about the economy in every article.

The indicator is reported on a scale of 0 to 100, where higher numbers represent increasingly positive sentiment.

Unlike some other indicators where 50 is a clear break-point between recession and recovery, the ESI needs to be read with reference to longer trends. The index dipped below 40 in July 2008, fell sharply during the latter part of 2008, started recovering in the last quarter of 2009 and had posted gains every month since April.

Dow Jones selected the 15 newspapers used to compile the indicator because they include extensive original reporting on economic issues. They are also geographically diverse and represent eight of the 10 largest metropolitan areas in the U.S.

The Dow Jones Economic Sentiment Indicator is provided for analysis purposes only and Dow Jones Newswires makes no representation that the indicator is a definitive predictor of sentiment or the health of the U.S. economy. This report does not in any way reflect an opinion of Dow Jones Newswires regarding the U.S. economy or the suitability of any investments.

DJ Economic Sentiment Indicator website: solutions.dowjones.com/esi


Gold Pushes Record Higher As Dollar Falls

Gold futures continued to push records higher Thursday as participants buy the metal to hedge a falling dollar and traders pile on amid a seven-session rally.

 The most-actively traded gold contract, for December delivery, recently was up $5.90, or 0.5%, at $1,316.20 an ounce on the Comex division of the New York Mercantile Exchange. The contract hit $1,317.50, the strongest ever intraday price for a most-active contract.


OIL FUTURES: Nymex Crude Tops $79/Bbl

Crude futures moved higher Thursday, helped by improving economic data, as traders digested a government report that showed falling U.S. oil and fuel inventories.

Light, sweet crude for November delivery recently traded $1.50, or 1.9%, higher at $79.36 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange traded $1.50 higher at $82.27 a barrel.


BEFORE THE BELL

US Stock Futures Up- Gross Domestic Product Up 1.7%
The US Dollar is continuing to decline. Stock futures are up in response to the latest batch of data. The third estimate on second quarter GDP showed an annualized growth rate of 1.7%, up from 1.6%.

Consumer Personal Spending Up
Personal consumption during the quarter is estimated to have increased at a 2.2% rate, up from the 2.0% that had been reported in the prior estimate. Core personal consumption expenditures for the quarter increased 1.0%, down from 1.1%.

US Initial Jobless Claims Below Estimate - Another 453,000 US Jobs Lost
Initial jobless claims for the week ending September 25 were also just released. They totaled 453,000, which is slightly less than the 457,000 initial claims that had been widely expected among economists polled by Briefing.com. The latest tally is down 16,000 from the prior week. As for continuing claims, they fell 83,000 week-over-week to 4.46 mil.


Economy - More Weakness Seen Ahead

By JEANNINE AVERSA, AP Economics Writer

The nation's economic growth tailed off sharply in the spring and probably isn't faring any better now.

Gross domestic product — the broadest measure of the economy's health — expanded at a feeble 1.7 percent annual rate in the April-June quarter, The Commerce Department reported Thursday.

That's a notch higher than the 1.6 percent growth rate the government estimated a month ago. The slight change was mostly due to a little more spending by consumers than first estimated. Still, that's not enough to have a major impact on the economy.

The second quarter estimate is a sharp slowdown from a 3.7 percent growth rate logged in the first quarter.

Most economists expect growth to be similarly weak in the July-September quarter, with estimates ranging between 1.5 percent and 2 percent. The government's first report on third quarter GDP will be released Oct. 29. Unemployment — now at 9.6 percent — is expected to stay high or even rise in the coming months.

Americans aren't spending enough to give companies the kind of confidence in the economy that leads to rapid hiring.

Consumers did boost their spending in the second quarter at a 2.2 percent pace. It was a tad better than the government's previous estimate of 2.0. But it is still considered lackluster for this point in the recovery by historical standards. Economists think consumers will spend at a slightly slower pace through the rest of this year.

Consumer spending is important because it accounts for roughly 70 percent of economic activity. In the second quarter, Americans saved 5.9 percent of their disposable income, the most in a year. Before the recession, they saved just 2.1 percent.

The economy is the top issue heading into the congressional midterm elections. Voter backlash could cause Democrats to lose control of Congress.

GDP measures the value of all goods and services produced in the U.S.

The sharp drop off in the second quarter mainly reflected fallout from a bigger trade deficit. A surge in imported goods swamped growth in U.S. exports to other countries. The bigger trade gap that resulted shaved 3.5 percentage points from second quarter growth, the most since 1947.

Another major factor in the economy's slowdown: Businesses added to their stockpiles of goods at a slower pace in the spring, reflecting concerns about the spending appetites of their customers.
The economy's growth has to be much stronger than what the U.S. has been logging to lower unemployment. Under one rule of thumb, the economy would have to expand by at least 5 percent for an entire year to drive down the jobless rate by one percentage point.

The Federal Reserve is weighing new action to bolster the economy. One likely step is to buy more government debt. Doing so would be aimed a lowering rates on mortgages, corporate loans and other debt. The Fed's goal: get Americans to boost their spending, which would strengthen the economy.

Thursday's report also showed that prices — excluding food and energy — rose at a slower pace in the second quarter. They increased at a 1 percent annual rate. That was down from a 1.2 percent in the first quarter and was the slowest pace since the beginning of 2009.

One of the things that Fed doesn't want to see happen is for the weak economy to lead to a dangerous bout of deflation, a widespread drop in prices of goods and services, in wages, and in the value of homes, stocks and other assets.

Meanwhile, the GDP report also showed that corporations' after-tax profits rose at a slower pace in the spring. Less generous profits are likely to make businesses think twice about making big capital purchases or stepping up hiring.

When the government reported in late August that the economy's growth had slowed to just a 1.6 percent pace, it stoked fears the economy might fall back into a recession. Since then, those fears have receded a bit, with reports showing that sales at retailers and activity at factories are holding up. Nonetheless, with the economy so fragile, it is more vulnerable to being hurt by any negative forces.

For each quarter, the government makes three estimates of GDP. It revises the figures based on more complete data. Thursday's was the third and final estimate for the second quarter. The government makes it first estimate of the economy's third-quarter performance at the end of October.





Canadian Market:
Toronto Stocks Lower At Midday On Widespread Selling

After posting a two-year closing high Wednesday, the stock market was lower at midday Thursday, as declines in materials stocks led across-the-board selling.

 At 11:45 a.m. EDT (1545 GMT), the S&P/TSX Composite Index was down 75.87 points, or 0.61%, at 12306.95 and declines led advances 790 to 627. Trading volume was 284.00 million shares. The S&P/TSX 60 Index was down 4.73 points, or 0.66%, to 711.41 points.


Canada Dollar Posts Intraday Rebound To Finish Stronger
The Canadian dollar was stronger Thursday, fighting offer the impact of soft gross demonstic product data for July and cautionary comments from Bank of Canada Governor Mark Carney.

The U.S. dollar was at C$1.0286 at 3:26 p.m. EDT (1926 GMT), from C$1.0320 at 8:00 a.m. EDT (1200 GMT) and C$1.0315 late Wednesday, according to CQG.

Earlier in the day, the Canadian dollar had shown some strength  against the greenback, but subsequently came under some pressure following the report that the Canadian economy had contracted 0.1% in July, the first time in 11 months. Manufacturing and construction showed the fastest rate of contraction in over a year, and output in retail, wholesale trade and forestry declined. However, it subsequently staged a rally to finish higher.

Carney also weighed on sentiment, saying further interest rate hikes need to be "carefully" considered and the outlook warrants caution because of "the unusual uncertainty" regarding the strength of the U.S. economy and the prospects of weakening retail spending and house sales in Canada.

Shaun Osborne, chief currency strategist at TD Securities believes the Canada/U.S. dollar pair is "stuck in a range" between around C$1.05 and C$1.03.

Earlier in the session, "Carney's comments definitely gave us a bit more reason for thoughts of a pause in October," when the Bank of Canada will have its next interest-rate policy meeting, Osborne said.

The Bank has increased rates three consecutive times, most recently Sept. 8.

The relative weakness of the U.S. economy has prevented the Federal Reserve from raising rates and if future data suggests the Fed could ease rates more that could offer some support to the Canadian dollar. However, Carney warned there is a limit to how much Canada's monetary policy can diverge from the U.S.

These are the exchange rates at 3:26 p.m. EDT (1926 GMT), 8:00 a.m. EDT (1200 GMT), and late Wednesday.

            USD/CAD   1.0286  1.0320  1.0315
            EUR/CAD   1.4025  1.4068  1.4064
            CAD/JPY    81.16   80.82   81.10



Canada Bonds End Mixed

Canadian bonds ended mixed Thursday, shadowing the movements of U.S. Treasurys, as key July GDP data came in as expected and U.S. data surprised on the upside.

The Canadian economy contracted 0.1% in July--the first negative reading in 11 months--but it was widely expected. More surprising were the reports out of the U.S., which showed the economy advanced at an annualized rate of 1.7% in the second quarter, beating economist forecasts. In addition, initial unemployment claims fell more than expected and the index measuring business outlook in the Chicago region rose in September from August.

The short end of the curve fared better than the long end. Canada's two-year bond yield was at 1.351% late Thursday, from 1.393% late Wednesday. The 10-year bond yielded 2.755%, from 2.750%. Bond yields and prices move in opposite directions.

In supply news, Caisse Centrale Desjardins raised C$600 million from an issue of deposit notes maturing in October 2017, and Molson Coors International, a unit of brewer Molson Coors Brewing Co. (TAPA) raised C$500 million from an issues of seven-year notes.

In addition, the Bank of Nova Scotia (BNS) launched a sale of US$1.25 billion in five-year senior unsecured bonds at 83 basis points over U.S. Treasurys.



Toronto Indexes, Volume; 3 PM EDT Composite Down 32.67

 S&P/TSX Composite   12350.15  off  32.67  or 0.3%
 S&P/TSX 60 Index      713.91  off   2.23  or 0.3%
 Financials            176.47  off   0.04  or 0.0%
 Materials             391.61  off   6.12  or 1.5%
 Energy                284.34  up    2.52  or 0.9%
 Industrials           104.73  off   0.15  or 0.1%
 IT                     28.18  off   0.26  or 0.9%

   Volume           Thursday   Wednesday
   2-3                 65.6M      55.7M
   9:30-3             496.1M     364.2M

Toronto Most Actives At 3:15 PM EDT

Horizons NYMEX Natural Gas Bull  24,028,608   3.69  off  0.17
Alexis Minerals                  14,466,533   0.24  up   0.05
iShares Cdn S&P/60 Index         12,806,139  17.90  off  0.03
Horizons NYMEX Crude Oil Bull     9,222,198   6.43  up   0.34
Horizons S&P/TSX 60 Index ETF     8,478,000  10.09  off  0.01
Bombardier Inc. B                 6,662,400   4.99  up   0.04
Connacher Oil & Gas               6,484,204   1.20  unchanged
Starfield Resources               6,256,817   0.04  unchanged
RS Technologies                   6,178,835   0.01  off  0.01
Kinross Gold                      6,175,583  19.27  off  0.30




South American Markets:

MEXICO:

Mexico Stocks Open Higher With U.S. Rally Then Fall
IPC            33371.52    184.76      0.56     +3.89

Mexican shares were charging higher early Thursday, tracking a rally in U.S. equities after the release of encouraging manufacturing and jobs data there.

At 10:30 a.m. EDT:
The Mexican peso, meanwhile, was treading nearly flat, at 12.5457 to the dollar early Thursday versus MXN12.5475 at the close Wednesday.

"Though the peso remains cheap from a real exchange rate perspective, we find plenty of reasons for this to be the case, including crime, falling oil output and an excessive dependence on the U.S. economy," Credit Suisse said in a research note.

The IPC index of leading Mexican issues was gaining 0.8% to 33,463 on healthy volume of 28.7 million shares traded worth 806.9 million pesos ($64.5 million).

Among Mexican benchmark shares, mobile phone operator America Movil's (AMX) L shares were advancing 0.9% early Thursday to MXN33.46 and cement group Cemex's (CX) CPOs were tacking on 1.1% to MXN10.90.

Also higher were the B shares in mining interest Grupo Mexico (GMEXICO.MX), up 1.5% to MXN36.47. Mexican statistics institute Inegi reported early Thursday that mining production rose 8.6% on the year in July, with output of copper--Grupo Mexico's main product--up 13%.


BRAZIL:
Brazil Real Closes At Strongest Level In Two Years


Brazil Stocks Lose Steam

Brazil stocks lost steam Thursday mid-morning after a bright start on the last trading day of the month, as U.S. economic growth offers some cheer and the Brazilian central bank played down inflation fears.

In Brazil, the central bank lowered its forecast for inflation in 2010 and 2011, saying the risk of higher inflation has diminished since the last quarter. Overseas, high commodities prices and a stable situation in European financial markets are helping to contain Brazil price increases, while locally, the ample incoming investment and a cooling of heated economic activity are positive.

At 1408 GMT the main Ibovespa stocks index was up 0.4% at 69468 points, having been up as far as 69736. State oil company Petroleo Brasileiro SA, or Petrobras, was down 0.3% at BRL30.85 while mining giant Vale SA (VALE, VALE5.BR) was flat at BRL46.10.

Petrobras said Brazil's government, the country's sovereign wealth fund and National Development Bank, or BNDES, together now hold a 49% stake in oil company Petroleo Brasileiro SA (PBR, PETR4.BR), or Petrobras, and a 64.3% share of voting shares.

The government purchased nearly two-thirds of Petrobras' massive stock offering last week, which raised $67.8 billion for the company, according to the company's final tally.


CHILE:

Chile's Peso Ends At 27-Month High

The Chilean peso ended at a 27-month high against the dollar Thursday as international copper prices held at a two-year high, sparking a new round of exporters' demands for intervention in the foreign exchange market.

The peso finished at CLP483.50 to the dollar, compared with CLP485.50 the prior session, while trading in a range of CLP482.70 to CLP485.00.

With Chile producing over a third of the world's copper, the peso often takes cues from the metal's international prices. Copper prices held at the two-year high it reached following a four-month rally driven by improving industrial demand and concerns about supply. As the strength of the peso cuts into the competitiveness of Chilean exports and because the local economy is highly dependent on its exports, exporters are turning up the heat as they demand market intervention.

Earlier in the day, Chilean agricultural workers threatened general protests if the central bank doesn't intervene in the peso market.

 The monetary authority, however, is unlikely to intervene in the local currency market unless the peso strengthens past CLP470, trader say.




ECUADOR:

ECUADOR GOVERNMENT DECLARES STATE OF EMERGENCY

Ecuador Police, Air Force Start Strike, Major Protests Spreads
Protesting Police Storm Ecuador's Congress

Ecuador troops take over Quito airport
Hundreds of angry police and military protesters plunged this small South American nation into chaos Thursday. The law enforcement professionals are over a new law to cut their benefits.

Members of Ecuador's national police and members of the air force on Thursday started protests and went on strike against the government of President Rafael Correa.

The heated protests started after the Correa administration went ahead with reforms that will cut benefits and affect decorations that increase remuneration for the police and military.

Police officials burned tires in the streets and protested against the government, while air force officials shut down the airport in Quito. The army has said it supports Correa.

The protests have spread to other parts of Ecuador, and now include other public sector workers affected by the new legislation. Reports said that students have also started to protest.

Political analysts said the protests are creating a serious political challenge for the Correa administration, especially as the military and police remain powerful political constituencies in the Andean nation.

Radio Quito reported that banks and other businesses in Ecuador were closing due to a lack of security. Various bank robberies have taken place in the southern city of Guayaquil.

Guards at the nation's Congress refused to open the doors to lawmakers who wanted to enter the national assembly.

The protests come, according to political analysts, as opposition legislators in the Congress have been meeting to try to force Correa to call early elections.

A police official, who didn't want to be identified, said 40,000 police officers are protesting across the nation. He added that 35,000 members of the military are supporting the protests.

The national police started a large protest at a police barracks in the capital on Thursday to protest the government's policies.

Newspaper; El Comercio reported on its Web page that more than a 1,000 police officers protested in front of the barracks in the northern part of Quito, marching and chanting, "Correa is in trouble, as he messed with the police."

Correa, went to the barracks in Quito on Thursday morning and told the protesters that he won't back off from his government's reforms.

"If you want to kill the president, kill him," Correa said in a speech in front of the protesters. "This president won't take a single step backwards," he added. Correa took office in January 2007, and won again in elections in 2009. His term ends in 2013 but he can run again for a new four-year term.

The head of the Ecuadoran army, Gen. Ernesto Gonzalez, Thursday threw his support behind President Rafael Correa as protests erupted against a controversial new law and troops seized Quito airport.

"We live in a state which is governed by laws, and we are subordinate to the highest authority, which is the president of the republic," Gonzalez told a press conference. "We will take whatever appropriate action the government decides on," he added.

President Rafael Correa said that widespread protests in Ecuador on Thursday are an attempt by the opposition to destabilize his government.

The government declared a five-day state of emergency, mobilizing armed forces to guarantee order after protests and strikes led by police and some military officials. The protesters are unhappy with a planned cut in benefits.

  "This is a conspiracy by the opposition and they aren't going to achieve anything," Correa said in a broadcast interview.

 "We aren't going to let the constitutional order be broken. Nothing is going to stop the citizen revolution," he added.

Correa said that he had received support from various foreign leaders, including the presidents of Chile, Peru and Venezuela as well as the secretary general of the Organization of American States.

Correa is in a military hospital after being affected by tear gas, according to the office of the president. Reports say that he is unable to leave the hospital due to the presence of protesters outside.

The undersecretary of communications for the government,  Patricio Barriga, told Dow Jones Newswires that Correa hasn't been kidnapped, although she said that he is "being retained by a group of insubordinates."

Members of Ecuador's national police and members of the air force on Thursday started protests and went on strike against the Correa administration after it went ahead with reforms that will cut benefits for members of the public sector.

  The protests quickly spread to various parts of Ecuador, leading to road blocks, riots and banks robberies.

  "It is clear that this is an attempt to destabilize the government," Correa said.

Members of Correa's government, such as Foreign Minister Ricardo Patino, are calling the protests an attempted coup. The chief of the joint military command, Florencio Ruiz, meanwhile, called on police to call off the protests, which he said could lead to a "blood bath."

  Correa added that he is seriously considering dissolving the Congress, which he has the right to do when he considers that the legislature ceases to function.That would mean however that he would have to call new elections for both the parliament and for his job as president. Correa first took office in 2007 and won in a second election in 2009. His term ends in 2013 but he can run again for a new four-year term.


Chavez Warns Of Coup Attempt On Correa; Offers Support
Venezuela President Hugo Chavez, responding to unrest in Ecuador Thursday, said via his Twitter account that forces are aiming to "take down" President Rafael Correa.

  A statement from Venezuela's Communications Ministry confirmed the Twitter message and said Chavez expressed his "absolute support" to Correa as he faces the "coup attempt."

  "They're trying to take down President Correa," Chavez said on the social-networking site, where he has about 900,000 followers. "Long live Correa."

  Chavez didn't say who or what groups he believes are specifically trying for a coup against Correa, but urged fellow leftists in the region to "be on alert."

  Correa, one of Chavez' close allies in South America, said earlier Thursday that widespread protests by police and others were an attempt to destabilize his government.

Peru's Pres Garcia Says To Close Border With Ecuador




ARGENTINA:

Argentina Wheat Crop Seen At 11.3M Tons

Argentina is on track to grow at least 11.3 million metric tons of wheat this season, up sharply from last year, the Buenos Aires Cereals exchange said in its weekly crop report Thursday.

Recent showers have helped boost the crop prospects, according to the exchange.

Argentina's Agriculture Ministry has estimated production from the developing wheat crop at 10 million to 11.2 million metric tons. That's on the low end compared with private forecasts and significantly down from the 12 million tons forecast by the U.S. Department of Agriculture.

Private estimates range from 9 million tons up to 14 million tons, but most see output at between 11 million and 12 million tons. According to the government, last year Argentina grew 7.5 million tons of wheat, although the USDA estimates that the crop was larger, at 9.6 million tons. The exchange also upped its forecast for sunflower-seed planting to 1.62 million hectares, compared to the 1.53 million hectares forecast last week.


European Markets:
Antiausterity Protests Rock Europe

European Stocks Mixed

European shares fell for the fourth straight session on Thursday, with investors locking in profits after the best quarterly gains in a year. 


The pan-European FTSEurofirst 300 .FTEU3 index of top shares closed 0.4 percent lower at 1,060.92 points in a choppy session, after the index hit a high of 1,078.21.

The index ended the month with its highest quarterly gains in a year, up 6.8 percent in the three months to end-September. A rally in early September helped the index rise 3.4 percent on the month to rebound from falls in August.

European stocks dipped on Thursday, down for the fourth straight day as investors digested Spain's credit downgrade and Ireland's massive bank bailout. 

Across Europe, Britain's FTSE 100 .FTSE, Germany's DAX .GDAXI and France's CAC 40 .FCHI lost 0.3 to 0.6 percent.


European sovereign-debt concerns re-emerged after Moody's Investors Service downgraded Spain's credit rating and the Central Bank of Ireland outlined the costs of rescuing its troubled banking sector, including the nationalized Anglo Irish Bank. Shares of Allied Irish Banks, which will need to raise an additional EUR3 billion ($4.09 billion), fell 12%.




FTSE On Track For Best Month Performance

The FTSEurofirst 300 .FTEU3 index of top European shares was down 0.2 percent at 1,063.21 points, still on track to post a gain of 7 percent on the quarter, the index's best quarterly performance in a year.

The Euro STOXX 50 .STOXX50E, the euro zone's blue chip index, was down 0.6 percent, at 2,736.88, piercing strong support at 2,737.62, which represents the 50 percent retracement of the index's fall from an April high to a May low.


European heavyweight banking stocks were mixed, with Deutsche Bank (DBKGn.DE) up 1.6 percent, Dexia (DEXI.BR) up 1.5 percent, Credit Suisse (CSGN.VX) down 1.8 percent and Banco Popolare (BAPO.MI) down 1.1 percent. 
European cities hit by anti-austerity protests. Thousands of protesters from across Europe are taking part in a mass demonstration in Brussels against spending cuts by some EU governments.A strike ground much of Spain's industry to a halt as hundreds of thousands of workers across Europe hit the streets to protest government spending cuts.The push back from workers came even as France and Portugal worked on new austerity budgets and the European Commission proposed new fiscal controls for member states to shrink the region's large deficits.


GERMANY:
Police Fire Tear Gas At Up To 10,000 German Rail Protesters In Stuttgart
German police used tear gas and water cannon Thursday as a stand-off between authorities and thousands of protestors against a multi-billion-euro rail project escalated.

Between 5,000 and 10,000 protestors tried to prevent construction workers from cutting down 25 trees in a park near the central station in Stuttgart, southwestern Germany, said Gerhard Pfeifer, a spokesman for a group organizing regular mass demonstrations against the "Stuttgart 21" project that is turning into a major issue for Chancellor Angela Merkel.

Police said they had deployed 1,000 officers to disperse the protestors. They said around 1,000 people took part in the protest. Numerous protestors were injured, Pfeifer said.

The building work is part of a EUR7 billion plan that aims to make Stuttgart and the surrounding region part of the 1,500 kilometer, high-speed "Magistrale for Europe" across Europe.

Opponents say the project will take longer than expected, go massively over budget and ultimately do little to speed up rail traffic. They say that other parts of Germany's rail network are in bigger need of improvement.

But locals in Stuttgart most object to parts of their train station, built between the wars by architect Paul Bonatz, falling victim to the wrecking ball, and to trees being cut down.

Last week, Merkel surprisingly threw her support behind the project.

It looks set to become a major issue in a March vote in Baden-Wuerttemberg state, where the chancellor's conservatives could lose control after more than half a century in power.


SPAIN:
In Spain, the largest union, Comisiones Obreras, calculated that around 10 million, or just over 50% of Spanish workers walked off their jobs in the nation's first nationwide strike in eight years. Unions are challenging draconian budget cuts and a labor market overhaul by Prime Minister Luis Rodriguez Zapatero, measures that are widely viewed as essential to cut a double-digit budget deficit and reduce a 20% unemployment rate.Spain's government sought to downplay the strike's impact, though without unduly antagonizing unions.


PORTUGAL:

Portugal Finance Minister: Expect 2010 Growth Above 1%

Portugal's finance minister said Thursday that he expected the country's economy to grow more than 1% this year, but he was sticking with his forecast for next year of a 0.5% expansion.

"Figures on growth have been much better than expected," Fernando Teixeira dos Santos said on the sidelines of a meeting of European Union finance ministers. "If things keep as they are now I would say that we can expect a figure above 1%...we have a forecast of 0.5% growth for next year and we are keeping it."

Official figures for the April to June period released earlier this month showed Portugal's gross domestic product grew 0.3% from the first quarter and 1.5% from the second quarter of 2009. In the first three months of the year the economy grew 1.1% on the quarter and 1.8% on the year.

Teixeira dos Santos said the government's austerity measures announced Wednesday, which include public-sector salary cuts and tax increases, were adequate. 
 


BELGIUM:
An estimated 50,000 to 100,000 workers descended on the seat of the European Union government in Brussels. Crowds packed with the bright colors of trade unions from all over Europe snaked through the neighborhood housing the EU buildings, ending up at the stately Parc du Cinquantenaire, where workers attended a rally and rock concert. A big display screen said "No to Austerity" in several languages.


IRELAND:
Dublin Stocks: ISEQ Ends +0.7% At 2,676; Financials Mixed

IRISH BANK FUNDING BOOSTS BUDGET DEFICIT TO 32% OF GDP
Ireland's financial crisis looms again as the government says additional costs of propping up the country's banks could stretch its government budget deficit to nearly a third of the country's total economy, a record for any Euro zone member.
Irish Central Bank: Bank Loans To Households Down -3.9%
Bank loans to Irish households fell 3.9% year-on-year in August after declining 4.7% on the year in July, the Central Bank of Ireland's Money and Banking Statistics report showed Thursday.

The central bank's report replaces the long-running monthly statistics on private-sector credit. The Money and Banking Statistics report focuses more in detail on institutional sectors of the economy.

The net flow of household lending during the month of August 2010 was EUR228 million, the first positive net monthly flow of loans to households in 2010, driven by net new lending of EUR309 million in loans for house purchase. This implies that loan draw-downs relating to house purchase were higher than repayments in August 2010, the report said.

Lending to the non-financial corporate sector declined by 2.2% in the year-ending August 2010, following a revised annual decline of 2.3% in July.



Ireland Propped Up  Second Largest Bank

The Irish government confirmed Thursday that it would take a majority stake in the country's second-largest lender Allied Irish Banks, costing it 34 billion euros (more than the 29.3 billion euros expected) and put billions more into two smaller banks. As a result, the government admitted, Ireland's deficit will rise to record levels, requiring more painful austerity measures.


GREECE:
Greece Plans Probe Of Goldman Sachs, Other Banks Seen Responsible For Crisis 

Greece's prime minister pledged Thursday that a parliamentary commission would examine the reasons behind Greece's finance crisis and the role played by Goldman Sachs Group (GS), reports said.

Prime Minister George Papandreou told a press conference reserved for Greek media that the panel would be set up by the end of the year.

  "In the context of this parliamentary commission on the economy
.. we are going to look into the participation of foreign institutions in the Greek problem," he said in a report carried by the semi-official ANA press agency.

He added that the probe would look back as far as 2001, the year Greece entered the euro zone, and that among its targets would be Goldman Sachs.

At issue is a complex currency swap that allegedly enabled Greece to mask the scope of its public debt as it sought to qualify for euro zone admission. Goldman Sachs provided expertise for the operation.

Left unchecked for years, and with its true magnitude hidden until elections last October that brought Papandreou's Socialists to power, Greece's public deficit produced a debt of nearly EUR300 billion.

Fears of Greece's insolvency earlier this year rattled the euro zone and reduced the country's sovereign bonds to junk status, drying up access to money markets for the state.

In exchange for pledges of assistance from the European Union and the International Monetary Fund, the government has adopted sweeping austerity measures, notably wage and pension cuts for civil servants, that have sparked six general strikes.



Asian Pacific Markets:
Asian stocks ex-Japan fell 0.4 percent but were set for their best quarter in a year as investors poured money into regional markets on the back of robust economic growth driven by China.

ASIAN STOCKS SLIPPING

Japan's Nikkei fell 0.7 percent after U.S. stocks closed lower, but was set for its best monthly performance in six, helped by expectations that further easing would curb the yen's strength.

Mounting speculation that the Bank of Japan was preparing to ease monetary policy again and that it could take action at its meeting next Tuesday was keeping the yen's gains in check.


JAPAN:

Japanese Traders remained wary of any further intervention by Tokyo to weaken its currency, as the dollar struggled against the yen. 

Japanese government bonds dipped on profit taking after the previous day's rally, although weak industrial output data further clouded Japan's economic outlook and helped to curb losses.



CHINA:

China Issues Warning On US Yuan Bill
China has warned that a US bill aimed at penalizing it for currency manipulation could "harm relations" between the two economic giants.

A Chinese foreign ministry spokesperson said China was "resolutely opposed" to the bill, which treats undervalued currencies as illegal export subsidies.

China is accused of keeping the yuan artificially low to help its exporters.

The bill has been voted through by the US House of Representatives, but still needs Senate and presidential approval.

"Using the [yuan] exchange rate issue as an excuse to engage in trade protectionism against China can only harm China-US trade and economic relations, and will have a negative effect on both countries' economies and the world economy," warned spokeswoman Jiang Yu, speaking at a regular press briefing. She also urged US congressmen to "resist protectionism".

WTO Trade Rules Cited

If it becomes law, the bill will allow the US Commerce Department to impose tariffs on Chinese imports, if it deems the yuan to be "fundamentally undervalued".

Those tariffs would also need the approval of the World Trade Organization (WTO).

But speaking to China's state-run news agency, Yao Jian, a spokesman for China's Ministry of Commerce, said US attempts to use the exchange rate to justify trade restrictions would violate WTO rules.

He also warned that the US had as much to lose from a trade war as China, with China is now the US's fastest-growing export market.

The Chinese government also argues that its trade surplus with the US does not demonstrate that the current yuan-dollar exchange rate gives it an unfair advantage, pointing out that it has similar trade surpluses with other Asian countries.

Even if the bill is not finally approved, it is likely to increase pressure on both the US and China to resolve the long-running disagreement over the yuan.

On Wednesday, China's central bank promised to increase flexibility in the exchange rate, three months after ending its policy of pegging the yuan to the dollar.

But there has been frustration among business groups and politicians in the US that the yuan has risen by only 2% in that time.

Analysts estimate the yuan is currently undervalued by up to 25% against the US dollar.

http://www.bbc.co.uk/news/business-11442733

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FOREX CURRENCY PARES

Currencies Snapshot:

EUR/USD	1.3647	+0.0007 (0.05%)
USD/JPY	83.3000	-0.3100 (-0.37%)
GBP/USD	1.5870	+0.0077 (0.49%)
CAD/USD	0.9699	-0.0005 (-0.05%)
USD/HKD	7.7607	+0.0021 (0.03%)
USD/CNY	6.6905	+0.0036 (0.05%)
AUD/USD	0.9700	-0.0009 (-0.09%)

World Markets Snapshot:

Shanghai	2,655.66	+44.98 (1.72%)
Nikkei 225	9,369.35	-190.03 (-1.99%)
Hang Seng Index	22,358.17	-20.50 (-0.09%)
TSEC	8,237.78	-3.11 (-0.04%)
FTSE 100	5,594.62	+25.35 (0.46%)
DJ EURO STOXX 50	2,757.85	+5.14 (0.19%)
CAC 40	3,730.25	-6.87 (-0.18%)
S&P TSX	12,382.82	0.00 (0.00%)
S&P/ASX 200	4,582.90	-62.10 (-1.34%)
BSE Sensex	20,069.12	+112.78 (0.57%)

Thursday's US Economic Calendar:

8:30 a.m.
Sept. ISM-NY Report on Business, US ISM-NY Business Index (previous 55.6)

8:30 a.m.
Sept. 25 Unemployment Insurance Weekly Claims Report - Initial Claims, Weekly Jobless Claims (expected 460K), Weekly Jobless Claims Net Change (expected -5K), Cont Jobless Claims (prior week) (previous 4489000), Cont Jobless Claims Net Chg (prior week) (previous -48K)

8:30 a.m.
2Q 3rd estimate GDP, GDP (expected +1.6%), Chain-Weighted Price Index (expected +1.9%), Corporate Profits (previous +0.1%), PCE Price Index (previous 0%), Purchase Price Index (previous +0.1%), Real Final Sales (previous +1%), Core PCE Price Index( Ex Food/Energy) (previous +1.1%)

9:45 a.m.
Sept. ISM-Chicago Business Survey - Chicago PMI, Employment Index (previous 55.5), New Orders Index (previous 55), Prices Paid Index (previous 57.2), Purchasing Managers Index (Adjusted) (expected 56), Supplier Deliveries Index (previous 61.2)

9:45 a.m.
Sept. Dow Jones Economic Sentiment Indicator, DJ Economic Sentiment Indicator (previous 43.2)

10:00 a.m.
Sept. 18 DJ-BTMU U.S. Business Barometer, DJ-BTMU Business Barometer (previous -0.1%), DJ-BTMU Business Barometer (52 Wk) (previous +5%)

10:00 a.m.
Fed Chmn Bernanke testifies before U.S. Senate Banking panel on the implementation on the Dodd-Frank Act in Washington

10:30 a.m.
Sept. 24 EIA Weekly Natural Gas Storage Report, Total Working Gas in Storage (previous 3340B), Total Working Gas in Storage (Net Change) (previous +73B)

11:00 a.m.
Sept. Federal Reserve Bank of Kansas City Survey of Tenth District Manufacturing, Manufacturing Activity Index (previous 0), Manufacturing Activity Index (6 Mon) (previous 10)

2:30 p.m.
Federal Reserve Chmn Bernanke attends Town Hall Meeting

4:30 p.m.
Sept. 29 Foreign Central Bank Holdings, Foreign US Debt Holdings (previous 3.23T), US Foreign Agency Holdings (previous 748.99B), Foreign Treasury Holdings (previous 2.48T)

4:30 p.m.
Sept. 29 Federal Discount Window Borrowings, Primary Credit Borrowings (previous 15M), Primary Credit Borrowings W/E Daily Avg (previous 20M), Discount Window Borrowings (previous 51.26B), Discount Window Borrowings W/E Daily Avg (previous 52.49B)

4:30 p.m.
Money Stock Measures

6:00 p.m.
Cleveland Fed Pres Pianalto participates in panel discussion on 'Vital Economic Issues Confronting Congress' in New York 

US Market Summary, Wednesday, Sept. 28, 2010:

Stocks:

Stocks fell slightly, as European bank worries were offset by a favorable exchange rate. The US dollar declined further Wednesday. 
September's gains sustainability has come under question because two key indicators have fallen just a bit shy of the broad market's ascent: small-capitalization stocks and transportation companies. 

Technicians note the Russell 2000 index of small-capitalization stocks and the Dow Jones Transportation Average haven't had surges similar to the broad Standard & Poor's 500-share index's key break above the 1130 level last week. 


Treasurys:

Treasurys fell for the first time this week as comments from Federal Reserve officials tempered bets that the central bank will step up government debt purchases. Fed Bank of Boston President Eric Rosengren, who votes on monetary policy this year, said that further monetary stimulus hinges on upcoming data. Charles Plosser, the president of the Philadelphia Federal Reserve Bank who isn't a voter this year, said he opposes a second round of Treasury purchases of any size, known as quantitative easing.


Forex:

The dollar fell against most of its major rivals Wednesday on the assumption that Federal Reserve stimulus will create cheap dollars faster than any other country's issues can dominate the conversation. The ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, fell Wednesday to its lowest level since January, though it recouped some of its losses by afternoon trading. The dollar stands at its lowest level against the euro since April, and has solidly breached the $1.36 mark.

The US dollar is not in danger of losing anytime soon its status as the world's reserve currency, said a report published Wednesday by the Council on Foreign Relations.