Stock Market Update - Tuesday, October 12, 2010 Cautious Upward Trend

Stock Market Update
Tuesday, October 12, 2010

Latest US Economic News Headlines: 

USA EQUITY INDEXES: (OCT. 12, 4:15 PM EDT)
Dow Jones 11,020.40     +10.06     (0.09%)
S&P 500    1,169.77     +4.45     (0.38%)
Nasdaq     2,417.92     +15.59     (0.65%)

Dow Jones 2:30 PM Averages: DJIA 11,008.14 DN 2.20

.  30 INDUS     11,008.14 DN    2.20 OR    0.02%
  20 TRANSP     4,601.01 DN   29.73 OR    0.64%
  15 UTILS        401.88 DN    2.13 OR    0.53%
  65 STOCKS     3,801.11 DN   11.26 OR    0.30%

US DOLLAR FUTURES INDEX DXY: 4:30 PM EDT: 77.33  0.11 (0.14%)      

US COMMODITY PRICES: (OCT. 12, 4:15 PM EDT)
Crude Oil     81.87     + 0.24%
Natural Gas     3.67     + 1.02%
Gasoline     2.13     -
Heating Oil     2.27     -
Gold     1350.42     - 0.25%
Silver     23.35     + 0.30%
Copper     3.80     + 0.42%


US STOCKS UP AFTER FED MINUTES - DOLLAR DOWN
US Stocks Turn Positive After Fed Minutes; DJIA Up 13 Then Dollar took Over Again

Stocks erased losses after the release of the minutes. The Standard & Poor’s 500 Index rose 0.3 percent to 1,168.44 at 3:19 p.m. in New York after falling as much as 0.8 percent.

The release “seems to set the stage for the next phase of quantitative easing,” David Resler, chief economist at Nomura Securities International Inc. in New York, said in a reference to large-scale asset purchases. “The minutes say ‘soon,’ and I think ‘soon’ means Nov. 3,” the date of the next scheduled policy statement.

The Sept. 21 statement saying the Fed “is prepared to provide additional accommodation if needed” was meant to accord “with the members’ sense that such accommodation may be appropriate before long,” the minutes said.

Barring surprising improvements in the economy, most Federal Reserve officials believe new steps would be needed to jump-start growth when they last met Sept. 21. Meeting minutes show a cut in projections for economic growth in 2011 and expectation that the underlying inflation rate will slow further.

Federal Reserve policy makers last month were prepared to ease monetary policy “before long” and focused on purchases of Treasury securities and boosting inflation expectations as ways to add stimulus.


US DOLLAR UP - MARKET DOWN
Market Cautious Over Economic Outlook May Lead To Further Consolidation

U.S. stocks slipped Tuesday ahead of release of Federal Reserve meeting minutes that are expected to shed light on the central bank's assessment of the economy and what stimulus may be needed.

The Dow Jones Industrial Average fell 34 points, or 0.3%, to 10977, in recent trading. Leading the drop, Verizon Communication fell 2.1% following an investment-rating downgrade from Bernstein Research. Also weak, Wal-Mart Stores declined 1.3% and Home Depot shed 1.4%.

Keeping the declines in check, the Dow's technology and financial components rose as investors grew hopeful for earnings reports due from Intel and J.P. Morgan. Intel, which is reporting after Tuesday's close, edged up 0.3%, while J.P. Morgan, which will release its report Wednesday morning, climbed 0.8%. Other technology gainers included Hewlett-Packard, up 0.3%, and Microsoft, up 0.2%, while financial advancers included American Express, up 1.7%, and Bank of America, up 1.2%. 

By 11:30 AM US stocks pared most of Tuesday's losses, bringing the Nasdaq Composite (NASDAQ:COMP) into positive terrain, as technology shares advanced ahead of results after the close from chip giant Intel Corp. (NASDAQ:INTC) .

The U.S. dollar continued to bounce back against most of its major counterparts on Tuesday, with the EUR/USD slipping to a low of 1.3886

The FOMC minutes may set the tone for short-term price action, if they reveal that policy makers took steps toward additional stimulus measures. The dollar has been battered with expectations of more QE, and market participants will scrutinize the comments and vote to determine the likelihood that action will come at the next meeting.

US Treasurys fell, reversing earlier gains after tepid demand on 3-year note sale suggested the ultra-low yield levels started to turn some investors away. The yield on the 10-year note was recently up to 2.40%.

The U.S. Treasury awarded $32.00 billion in three-year notes at Tuesday's auction at a high rate of 0.569%. The Treasury received bids totaling $94.27 billion and accepted $32.00 billion. Primary dealers were awarded $18.90 billion, while indirect bidders--a category that includes foreign central bankers--were awarded $9.26 billion. Indirect bidders got 29% of the total competitive amount accepted; direct bidders received 12%.

US Stocks Slip Ahead Of Fed Minutes; China Worries Weigh
Stocks are sliding in the opening moments of trading as investors take a cautious tone before the Federal Reserve releases details from its September meeting. Traders have been betting in recent days that the Fed will start buying bonds to stimulate the economy.

U.S. stocks fell Tuesday as investors grew apprehensive about Federal Reserve minutes due in the afternoon while renewed worries over China's efforts to cool its economy also weighed.

The Dow Jones Industrial Average shed 65 points, or 0.6%, to 10946, in early trading. The measure's decliners were broad, with Verizon Communications, Caterpillar and Walt Disney leading the drop. Verizon fell 2.4% while Caterpillar slipped 1.4% and Disney lost 1.3%. Intel declined 0.4% ahead of the chip giant's third-quarter results due after the close.

The Nasdaq Composite dropped 0.6% to 2388. The Standard & Poor's 500 index lost 0.6% to 1158, with its energy and materials sectors leading the drop.

The dollar strengthened as China's central bank also set a higher central parity. The U.S. Dollar Index, tracking the U.S. currency against a basket of six others, rose 0.3%.
 
The dollars climbs, reversing some of its recent declines on concerns over what indications might come out in minutes due later in the session about the Federal Reserve's next potential move. Investors have been increasingly expecting the Fed to unveil additional stimulus measures at its November meeting, which has driven the dollar lower and stocks higher in recent weeks.

The minutes of the Federal Open Market Committee's Sept. 21 meeting, due for release at 2 p.m. EDT, will be closely watched for any signals on how the central bank may restart a Treasury buying program, known as quantitative easing, in an effort to revive the slowing economic recovery.

"We've put this quantitative easing premium in the marketplace, and now people are a little worried about the size of it," said Phil Flynn, an analyst with PFG Best, which tracks the market. He said traders are selling to lock in profits.

Equities markets are also trading lower, with the Dow Jones Industrial Average recently down 55 points to 10954.

Treasurys advanced in early trading, pushing the yield on the 10-year note down to 2.36%. The Treasury rally came as investors braced for a $32 billion three-year sale of notes at 1 p.m. EDT, the first leg of this week's $66 billion of new government notes and bonds.

Investors are also looking ahead to third-quarter earnings reports, with results from bellwether companies including J.P. Morgan Chase, Google and General Electric set to come later this week following Intel's report due Tuesday afternoon. J.P. Morgan edged up 0.1% while Google added 0.7% and GE tacked on 1.1%.



OIL FUTURES:
Nymex Crude Falls Ahead Of Inventory Data Report and Dollars Strength

Crude futures fell Tuesday as investors grew nervous ahead of the release of minutes from the Federal Reserve that could offer clues on the central bank's plans to stimulate the economy.

Light, sweet crude for November delivery recently traded 74 cents, or 0.9%, lower at $81.47 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange traded 56 cents lower at $83.16 a barrel.

After a rally above $84 a barrel last week, oil traders are wary about how the central bank will decide to act, and how it will influence oil and the financial markets that crude has closely followed in recent months.


US NATURAL GAS:
Futures Settle Up 0.8% At $3.629/MMBtu


WHITE HOUSE ENDS DEEP WATER DRILLING BAN

Interior Secretary Ken Salazar says drilling in waters deeper than 500 feet can resume, as long as rig operators can show they comply with new safety rules imposed since the April 20 rig explosion that began the three-month Gulf oil spill.

Michael Bromwich, the head of the Interior Department's Bureau of Ocean Energy Management Regulation and Enforcement, made the statement at an event at the Platts Energy Podium. He said later that there is "no question" that development drilling is safer than exploratory drilling, which involves exploring for new oil and gas reserves. The blown-out BP PLC (BP, BP.LN) oil well that was recently sealed was an exploratory well.

On Oct. 1, Bromwich made recommendations to Interior Secretary Ken Salazar on the conditions under which the moratorium could be lifted.


OPEC Unlikely To Change Output Ceiling

The Organization of the Petroleum Exporting Countries is highly unlikely to change the current output ceiling when the group meets in Vienna Thursday, a senior Gulf OPEC official said Tuesday.

  "It is very unlikely [there will be] any change...there is a consensus between OPEC members" to keep the output ceiling unchanged, the official told Zawya Dow Jones. OPEC is also happy with the current price of oil, he said.

OPEC decided in late 2008 to reduce its production by a total of 4.2 million barrels a day to revive flagging oil prices. Most OPEC countries, including hawkish Iran, have said the organization should stick to its current quota target.

Saudi Oil Minister Ali Al-Naimi said Monday that he is satisfied with oil markets and prices, hinting that no action is necessary when OPEC meets Thursday.


GOLD DOWN AS DOLLAR HOLDS
U.S. Gold ans Silver Prices
GOLD:   $ 1,358.
SILVER: $ 23.32

Engelhard Corp's base price for industrial gold bullion was $1351.44 per troy ounce, down $3.01 from previous. It's selling price for gold in fabricated form was $1452.80, down $3.23.

Handy & Harman's base price for gold was $1348.50 per troy ounce, down $3.00. The fabricated form price was $1456.38, down $3.24.


ECONOMY DOESN'T NEED MORE FED SUPPORT
The Federal Reserve's leading dissident policymaker, Hoenig criticizes those who favor the Fed restarting its asset buying program, saying there's no strong evidence the added liquidity would be particularly effective in spurring new investment.


NY FED PLANS NEW TESTS OF REVERSE REPO FACILITY
The Federal Reserve Bank of New York is planning more 'small-scale, real-value' tests of its reserve draining reverse repurchase agreement facility and will tap a list of non-primary dealer counterparties. It didn't offer dates for the operations.


GOOGLE INVESTS $5 BILLION - OFF-SHORE WIND POWER
Internet search engine giant Google is investing in a mammoth project to build an underwater "superhighway for clean energy" that would funnel power from offshore wind farms to 1.9 million homes without overtaxing the already congested mid-Atlantic power grid, the company said.

Google is partnering with Good Energies, an environmentally focused international investment company based in New York, London and Switzerland, and Tokyo-based Marubeni Corp. to finance the project, which the New York Times reported Tuesday could cost $5 billion.

The project, dubbed the Atlantic Wind Connection, is being led by Trans-Elect, an independent electric transmission company based in Chevy Chase. Although the project is outside of Google's normal Internet focus, company officials said in their announcement: "We believe in investing in projects that make good business sense and further the development of renewable energy."

The company will provide 37.5 percent of the equity for the initial development stage of the project, in which officials hope to obtain the approvals that would be required to begin construction.

The New York Times reported that Trans-Elect hopes to begin construction in 2013. The project is to be formally unveiled late Tuesday morning at the National Press Club.


US AD REVENUE RISES ON INTERNET
US Internet-Ad Revenue Hit Record In First Half Of Year IAB Reports

U.S. Internet advertising revenue hit a record in the first half of this year, according to a report by the Interactive Advertising Bureau and PricewaterhouseCoopers US, signaling the sector that has been weak since the recession has rebounded.

Internet ads, which like other forms of marketing saw cutbacks the past several years, have been seeing growth ahead of other forms of advertising as marketing dollars went back to work.

Overall, Internet advertising revenue in the U.S. increased 11% to $12.1 billion in the first half of the year from the same period last year, according to the IAB Internet Advertising Revenue Report. For just the second quarter, it climbed 14% on year to hit a record quarterly figure of $6.2 billion.

IAB President and Chief Executive Randall Rothenberg said, "This report highlights marketers' ongoing adoption of interactive media to build brands--and that's only going to continue."

Leading the first-half growth was a 31% jump in digital-video ads. That segment was included in display-related adverting such as banner ads and rich media, which overall had a 16% increase. Search ads continues to take up the largest chunk of the total revenue, jumping 12% to $5.7 billion. Consumer-packaged goods and pharmaceuticals had the most notable increases in online-ad spending.


NOKIA - THE SMART PHONE LEADER
Nokia Holds Top Smartphone Market-Share Spot; Apple, RIM Fall

Nokia gained market share, jumping to 39.7% in the second quarter from 38.5% during the first, according to iSuppli. In positions 2 and 3 were BlackBerry maker RIM and Apple--with RIM's share of the market falling to 18.5% from 18.8% and Apple dropping to 13.9% from 15.7%.

Nokia Corp. (NOK, NOK1V.HE) held the top spot for global smartphone market share in the second quarter, with other handset makers gaining ground, helped by the popularity of Google Inc.'s (GOOG) Android operating system, according to research iSuppli Corp.

Amid Android's proliferation, smartphone pillars Research In Motion Ltd. (RIMM, RIM.T) and Apple Inc. (AAPL) lost ground.

The Android operating system has wildly grown in popularity in recent months as more handset makers build phones that run on the platform. ISuppli has said it expects that by 2012, more phones will run on Android than do on Apple's iPhone operating system.


FDIC FORMS NEW FAILING BANK STRATEGY
MORE FAILURES AHEAD

FDIC Approves Initial Rule On Bank Breakups

U.S. regulators have approved an initial rule for the government to seize and dismantle large, troubled financial firms, including a provision that in limited cases could allow some creditors to get more favorable treatment than their peers.

The Federal Deposit Insurance Corp.'s board of director approved the initial rule Friday, the agency said Tuesday. The rule is now open to public comment and subject to future changes by the FDIC.

The FDIC gained the authority to dismantle large faltering financial firms in the Dodd-Frank financial law as part of the government's effort to end taxpayer bailouts of "too big to fail" firms because the government lacks an orderly way to wind them down.

The proposed rule is narrowly targeted to a handful of issues, the most significant of which is the FDIC's treatment of certain creditor claims during the wind-down process.

The rule would clarify that the FDIC has the authority to extend additional payments to short-term creditors in certain instances. Specifically, the additional payments could be made only if they are necessary to maintain essential operations of the firm or to maximize the value of the firm, FDIC officials said.

The rule would bar shareholders, subordinated debt holders and long-term senior debt holders from ever receiving additional payments.

"This is the significant narrowing of the discretion" that FDIC has in the Dodd-Frank law, particularly regarding creditor treatment, FDIC Chairman Shelia Bair told reporters on a conference call.

FDIC officials said the proposed rule seeks to clarify that the agency will use its discretion on creditor treatment rarely and in very limited circumstances.

The initial rule announced Tuesday is only the start of the agency's process of implementing the so-called liquidation authority. The agency intends to put forward broader rules establishing the liquidation process in the first quarter of 2011.

The proposed rule approved last Friday includes a request for public comment on a broader range of questions that the FDIC will use as it crafts these broader rules. The public has 90 days to comment on the questions, while there is a 30-day comment period for the narrower rule that includes the creditor treatment language.


US CITIES PENSIONS FAILING TO MAKE THE GRADE
Washington Post Report Warns Of Coming Wave Of Muni Pension Shortfalls

The nation's largest municipalities are carrying unfunded pension obligations totaling $574 billion, according to a report released Tuesday, The Washington Post reported.

The "off-the-balance-sheet debt" threatens to starve municipal services such as police protection, recreation centers, parks and libraries, and comes on top of as much as $3 trillion in unfunded pension promises made by the states.

"The ability of local governments, particularly cities, to provide the levels of service they do now is threatened by this liability," said Joshua Rauh, a Northwestern University business professor who co-authored the report with Robert Novy-Marx, a University of Rochester professor.

The authors looked at pension funds in 50 major cities and counties accounting for two-thirds of the nation's 3 million local government employees and found that cities routinely use unrealistic projections of investment earnings to understate their pension liabilities.

The strategy has been exposed by the recession and financial crisis, which significantly curbed investment returns, and the result has been a growing wave of pension shortfalls that will threaten many local governments in the near future, the study said.

Five major cities -- Boston, Chicago, Cincinnati, Jacksonville and St. Paul -- have pension assets that can pay for promised benefits only through 2020.

For the complete article at the Washington Post, visit:
  http://www.washingtonpost.com/wp-dyn/content/article/2010/10/12/AR2010101200044.html?sub=AR



CONFERENCE BOARD INDEX DECLINED
US Conference Board: Employment Trends Index Falls In Sept

A September measure of labor indicators fell moderately, adding to worries about the job markets, according to a report released Tuesday by the Conference Board.

The board said that its September employment trends index fell to 97.0 from a revised figure of 97.3 in August, first reported as 96.7.

The September index is up 9.3% from a year ago.

"While continued slow job growth remains the most likely scenario over the next several months, the Conference Board ETI suggests that the likelihood of another episode of job losses is increasing," said Gad Levanon, associate director.

Four out of the eight components declined last month. The negative indicators were: the percentage of consumers who say jobs are "hard to get", the percentage of firms with positions not able to fill right now, involuntary part-time employment, and job openings.

The ETI release follows Friday's disappointing jobs report that showed private businesses added only 64,000 in September.

The Conference Board's index is an aggregate of eight labor-market indicators, including jobless claims, job openings data from the Bureau of Labor Statistics, and industrial production figures from the Federal Reserve. It seeks to facilitate forecasts for employment, unemployment and wages by filtering out the noise and volatility of monthly labor market indicators and showing underlying trends more clearly.


UN SECURITY SEATS ELECTED
Germany, India, South Africa Get UN Security Council Seats

Germany, India, South Africa and Colombia on Tuesday won seats on the UN Security Council but a second round of voting was ordered at the UN General Assembly for the final available place was decided between Canada and Portugal as Canada declined to remain in the runoff for the seat.


BEFORE THE BELL:

DOW DIPS -DOLLAR UP

The Dow Jones Industrial Average (DJIA) could be headed for a rough session, as anxiety is sweeping Wall Street ahead of the release of minutes from the Federal Reserve's September policy meeting.

The major US index futures are pointing to a lower opening on Tuesday, with sentiment impacted once again by the uncertainty surrounding the global economic recovery.

The dollar rose against the euro and a basket of currencies on a short-covering bounce ahead of the release of minutes from the U.S. Federal Reserve's Open Market Committee meeting from Sept. 21. The dollar index .DXY rose 0.3 percent.

"The dollar has really been the key driver in just about all asset classes, including the market. It's all a function of what our expectations are for quantitative easing come November," said Arthur Hogan, chief market analyst at Jefferies & Co in Boston.

The prospect of quantitative easing has created an inverse correlation between the dollar and equities as investors use the greenback as a trigger point to move into or out of stocks.

The Fed, which will release the minutes at 2 p.m. EDT (1800 GMT), said after its Sept. 21 meeting it stood prepared to provide more support for the economy but expressed concern about low inflation.

 
LIONS GATE BID FOR MGM
Lions Gate Proposes Merger With Debt-Ridden MGM

Lions Gate Entertainment Corp. (LGF) has made a merger offer with ailing Metro-Goldwyn-Mayer Inc. and disclosed the move has the backing of Lions Gate's three biggest shareholders.


DOW FUTURES RISE - DOLLAR SLIPS
US STOCKS-Firming dollar sends futures lower

U.S. stock index futures fell on Tuesday as the dollar firmed and an official Chinese newspaper confirmed the nation's central bank increased its required reserve ratio for six banks.

Six banks had been hit with a 50 basis point increase in reserve requirements, the fourth hike this year, due to excessive lending, the China Securities Journal reported, confirming a Reuters story on Monday.

Pfizer Acquires Pain Drug Maker King for $3.6 Billion
Pfizer Inc. said it would pay $3.6 billion to buy King Pharmaceuticals Inc.

GlaxoSmithKline PLC (GSK.LN), Sanofi-Aventis SA (SAN.FR), Novartis AG (NOVN.VX), and Johnson & Johnson (JNJ) have put in concrete bids for Indian drug firm Paras Pharmaceuticals Ltd., the Business Standard reported on its website Tuesday, citing people close to the development.


US DOLLAR HOLDS OVERNIGHT MARKETS DOWN
DJIA Futures Dip Ahead of Fed Minutes

The greenback held firm on Tuesday against most of its counterparts, while stocks also traded down ahead of the U.S. corporate earnings season.The dollar was at $1.3818 to the euro after gaining 0.5 percent to $1.3876 yesterday in New York.


CRUDE OIL FUTURES DECLINE - DOLLAR GAINS

Crude fell for a second day as the dollar strengthened, reducing the investment appeal of commodities, and after Saudi Arabia signaled that OPEC may leave production targets unchanged.

Crude for November delivery fell as much as 91 cents to $81.30 a barrel in electronic trading on the New York Mercantile Exchange, and was at $81.32 at 2:24 p.m. Singapore time. Yesterday, the contract lost 0.5 percent to $82.21. Futures last week gained for a third week, the longest stretch since June.

Oil dropped as much as 1.1 percent after the dollar climbed from an eight-month low yesterday against the euro and a 15-year low to the yen. The Organization of Petroleum Exporting Countries, which pumps 40 percent of the world’s oil, may maintain output quotas at an Oct. 14 meeting after Saudi Arabia’s oil minister Ali al-Naimi described the market as “very well-balanced,” and said prices between $70 and $80 a barrel were “ideal.”

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Canadian Market: 

Toronto Stocks Slightly Lower At Midday
The stock market was marginally lower at midday Tuesday as commodity prices slumped in the face of a strengthening U.S. dollar. Canadian financial markets were closed Monday for the Thanksgiving holiday.

At 11:45 a.m. EDT (1545 GMT), the S&P/TSX Composite Index was down 15.08 points, or 0.12%, at 12520.51. Decliners edged out advancers 688 to 663. Trading volume was 179.0 million shares. The S&P/TSX 60 Index was down 1.55 points, or 0.2%, to 723.86 points.


Toronto Indexes, Volume; Noon EDT Composite Down 12.21

 S&P/TSX Composite   12523.38  off  12.21  or 0.1%
 S&P/TSX 60 Index      724.26  off   1.15  or 0.2%
 Financials            177.53  up    0.23  or 0.1%
 Materials             398.44  off   0.48  or 0.1%
 Energy                291.35  off   0.76  or 0.3%
 Industrials           105.77  off   0.72  or 0.7%
 IT                     27.91  off   0.21  or 0.7%

   Volume             Tuesday     Friday
   11-12              44.4M        63.8M
   9:30-12           190.9M       194.8M

Toronto Most Actives At 1:15 PM EDT
Horizons NYMEX Natural Gas Bull    6,490,101  3.12  off  0.14
Eastern Platinum                   5,431,810  1.49  off  0.02
Crowflight Minerals                4,617,896  0.06  unchanged
Uranium One                        3,392,810  3.72  up   0.08
Lundin Mining                      3,170,673  5.45  off  0.05
Manulife Financial                 3,166,173 12.41  unchanged
Kinross Gold                       2,754,170 19.02  off  0.23
Western Coal Corp.                 2,746,168  6.74  off  0.06
Questerre Energy                   2,744,559  1.96  up   0.17
Great Basin Gold                   2,671,856  2.72  up   0.15

Canada Govt Sees Return To Surplus In 2015/16
Canada's federal budget will return to balance in 2015/16 after seven consecutive deficits, the government said in a report Tuesday.

The deficit was a record C$55.6 billion in 2009/10, higher than the C$53.8 billion projected in the 2010 budget in March. Shortfalls in 2010/11 and 2011/12 are forecast at C$45.4 billion and C$29.8 billion, respectively.

"The commitment to return to budgetary balance results from the government's fundamental belief that the private sector is the engine of growth and wealth creation," the government said in its fall economic update which typically revises forecasts in the annual budget. "The role of government is to provide the infrastructure, programs and services for a prosperous economy and society at levels of taxation that are competitive and sustainable for the long term."

Web site http://www.fin.gc.ca
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South American Markets:

MEXICO:

Mexico August Industrial Production Beats Estimates
Industrial Production (Year-On-Year):

            Aug    July    June    Aug 09   FY/2009
Forecast:  +6.0%   +6.4%   +8.1%   -6.3%       -
Actual:    +8.1%   +5.2%   +8.6%   -7.4%      -7.3%

Industrial production in Mexico rose more than expected in August, as manufacturing continued to expand in double digits from a year ago and was supported by gains in construction, mining and utilities.

The National Statistics Institute, or Inegi, said Tuesday that industrial production grew 8.1% from August 2009, with manufacturing rising 11.6%, led by the auto, food, metals and electronics sectors. Mining, including oil and gas, rose 7.4%, construction edged up 1.1% and utilities--water, gas and electricity--rose 1.8% from a year earlier.

The increase in industrial output was above the 6% median estimate in a Dow Jones Newswires survey of 11 economists. Industrial production was also higher than that of July, rising 0.46% in non-annualized seasonally adjusted terms, with gains in all categories except utilities.

The industrial sector has been the main driver of Mexico's economic recovery from the 2008-09 recession, with industrial output up 6.7% in the first eight months of the year from the like-2009 period.

The rate of growth, particularly in export-oriented manufacturing, has been expected to slow given the deceleration in the U.S. recovery.

Gross domestic product expanded 5.9% in the first half of this year and is widely expected to grow between 4.5% and 5% in the full year after a 6.5% contraction in 2009.

Mexican Government Securities Yields Fall
Yields on Mexican government securities fell Tuesday at the Bank of Mexico's weekly auction as investors continue to expect interest rates to stay low for an extended period of time.

The yield on benchmark Treasury bills, or Cetes, fell 0.13 percentage point to 4.05%, while the yield on three-month bills fell 0.04 percentage point to 4.48%, and six month yields fell 0.03 percentage point to 4.59%.

The yield on five-year bonds fell 0.6 percentage point to 5.53%. The government sold a benchmark amount of the June 2015 bonds in the third quarter, placing MXN25 billion at 6.13% in a syndicated auction. It sold a further MXN4.5 billion Tuesday, with demand at MXN13.45 billion.

BBVA Bancomer said in a report that futures on the interbank TIIE rate confirm market expectations that the Bank of Mexico won't be raising interest rates for an extended period.

The central bank is widely expected to the leave its overnight lending rate target at 4.5% until the third quarter of 2011, as inflation has been consistently below estimates in the recent months and the economic rebound from the 2009 recession is expected to slow in the second half of the year.


Mexico's Stocks Open Lower, Tracking US On China Bank News

Mexican stocks opened lower Tuesday, tracking weakness in U.S. equities as reports that China is moving to curb bank lending cast a pall over expectations for a major engine of global economic growth.

  The local-market IPC index of leading issues was down 0.6% recently at 34244 points. The IPC gave up strong intraday gains Monday and ended flat, shying away from setting another all-time-high close.

  Volume was 10.7 million shares valued at 329.2 million pesos ($26.4 million).

  Bellwether America Movil's L shares were off 1% to MXN34.37. In a filing with the exchange Monday, America Movil announced an offer to buy the few remaining shares of holding company Carso Global Telecom it doesn't own, as magnate Carlos Slim completes the consolidation of his telecommunications holdings.

  America Movil acquired more than 99% of Carso Global Telecom in a June tender. Carso Global Telecom held around 60% stakes in Telmex Internacional and Telefonos de Mexico.

  Retailer Wal-Mart de Mexico's V shares were off 0.6% to MXN31.11 after the company's third-quarter earnings, reported Monday after the close, fell short of analyst expectations.

  "Weak margins, coupled with a sluggish recovery in SSS [same-store-sales], mainly in Mexican operations, lead us to reiterate a cautious view on the name," Credit Suisse said in a report, reiterating its neutral recommendation.

  Mexico's Vector brokerage described the earnings report as positive, but expressed surprise at high expenses in the quarter. Vector lowered its year-end price target to MXN36 from MXN38 a share, but kept its buy recommendation.

  The peso, which weakened Monday in light trading with U.S. Treasury markets closed, was giving back further gains and quoted in Mexico City at MXN12.4645 to the U.S. dollar, compared with MXN12.4473 Monday.



ARGENTINA:

Argentina Soy Oil Exporters View End To China
Argentina's soyoil exporters are cautiously optimistic that China is poised to resume its purchases of soyoil, but they are waiting to see an actual sale go through before celebrating an end to the six-month old trade dispute.

An executive at one of Argentina's leading grain and vegetable oil exporters told Dow Jones Newswires on Tuesday that he is waiting to "see it to believe it."

In April, China--the world's largest importer of the edible oil--blocked imports from Argentine--the largest exporter--citing purity standards. But many saw the move as retaliation for a host of anti-dumping duties imposed by Argentina on imported Chinese goods.

Fueling scepticism over the resumption of soyoil sales is the fact that there seems to have been no progress in resolving the underlying conflict over trade barriers. In fact, Argentina has expanded the number of Chinese products hit by anti-dumping penalties in recent months.

Despite the tension, the Chinese appear to be more concerned with their domestic food prices. China is facing high inflation and Argentine soyoil is cheaper than what it is now buying from the U.S. and Brazil, said Ricardo Baccarin, vice president at local brokerage house Panagricola.

A senior trader with a large Chinese grain buyer said Tuesday that China's government is clearing new soyoil imports from Argentina, although no purchases have taken place yet.

China's Ministry of Commerce would support the resumption of soyoil imports from Argentina as long as there are no quality concerns, said Chen Rongkai, a ministry media official.

Argentine President Cristina Fernandez celebrated the news in a twitter post on Tuesday. "If it wasn't enough, China is buying oil again," Fernandez wrote.

Agriculture Minister Julian Dominguez told state news agency Telam on Monday there were signs that China would allow shipments to resume, although a foreign ministry spokesman on Tuesday declined to comment. A resumption of sales to China would be a boon to Argentina's farmers, who were slow to sell this season and still have significant soybean stocks remaining, Panagricola's Baccarin said.


CHILE:

Chile's Peso Closes At 29-Month High On Heavy Dollar Sales-
-
-
European Markets: 
The euro is also weakening against the dollar, and was recently down 0.3% to $1.3828. A stronger dollar makes oil cheaper for buyers in other currencies, and its recent decline to 8-month lows against the euro has been a primary factor in crude's most recent surge.

US DOLLAR UP - EUROPEAN SHARES DOWN
Europe's Markets Drop at Open

European stocks opened lower Tuesday, tracking a weak session in Asia amid nervousness over the forthcoming US earnings season. Global stocks, and commodities fall, Utilities rise ahead of FOMC minutes as the us dollar holds gains.

The Stoxx Europe 600 Index fell 0.5%. London's FTSE 100 Index lost 0.6%, Frankfurt's DAX declined 0.8% while Paris's CAC-40 Index lost 0.8.


LONDON:

The U.K.'s inflation rate held steady at 3.1% in September, the ninth consecutive month that it has been at least one percentage point above the Bank of England's target, data from the Office for National Statistics showed Tuesday.

UK Aug Goods Trade Deficit Narrowed To GBP8.2 Billion
The U.K. trade deficit narrowed in August from the record deficit in July as imports fell by more than exports, while exports to Europe rose, data showed Tuesday.

The British Chambers of Commerce called for action from the government and the Bank of England to ward off a double-dip recession after its latest survey showed economic activity eased in the third quarter.

U.K. residential property prices slipped further in September as a fresh influx of homes for sale combined with a lack of buyers, the Royal Institution of Chartered Surveyors said Tuesday.

U.K. retail sales growth slowed in September, with higher food prices accounting for most of the increase since the same month last year, according to a monthly survey by the British Retail Consortium.

U.K. Chancellor of the Exchequer George Osborne said Tuesday he had appointed former Monetary Policy Committee member Steven Nickell to the forecasting panel of the new Office for Budget for Responsibility.

U.K. oil major BP PLC (BP.LN) is planning to hold a meeting for global and local contractors to brief them on contracts that it is planning to award to upgrade Iraq's super giant Rumaila oil field, a senior Iraqi official said Tuesday.

U.K. drug maker GlaxoSmithKline PLC (GSK.LN) said Tuesday it intends to strike marketing deals to bring drugs for rare diseases only available in the West to patients in emerging markets.



GERMANY:

ECB Drains EUR108.993 Billion At 1-Day Quick Tender
The European Central Bank said Tuesday it drained EUR108.993 billion from the money market through a one-day operation.

The ECB said it accepted all bids up to 0.80%, accepting all bids at the cut-off rate. The weighted-average bid rate was 0.76% and the minimum bid 0.55. The ECB said 143 banks bids at the tender.

The tenders are a routine operation at the end of every monthly reserve period. A new monthly reserve period begins Wednesday, against the backdrop of dwindling excess liquidity in the euro zone's financial system. As such, interest rates in the interbank market are settling into a higher range, with tomorrow-next rates for secured credit quoted around 0.725%.


GERMAN IMMIGRATION DEBATE RENEWED
A German conservative leader's suggestion that the country admit no further Arabs or Turks has added fuel to a national debate in Germany about Muslim immigration.


FRANCE:

FRENCH UNIONS STEP UP PROTESTS
France's economic activity is taking another beating as unions stage the third day of strikes this fall to protest against pension reform.

French Unions and police say Tuesday's protests in Paris are the biggest so far, estimating a turnout of 330,000. French unions are staging a day of nationwide strikes and demonstrations in opposition to the government's pension reforms - the third in a month.

In Paris, the Eiffel Tower was closed. 56 petrol tankers and 29 cargo ships are stranded outside Fos-Lavera port. Half of all flights to and from Paris Orly airport, and one in three at Charles de Gaulle and Beauvais have been canceled for Tuesday.

Train drivers launched an open-ended strike on Monday evening. Commuter trains in Paris were badly hit but the metro is less affected and buses should run as usual.

"This is one of the last chances to make the government back down," said Francois Chereque, the leader of the French Democratic Confederation of Labour (CFDT). Further mass demonstrations are planned for Saturday. Among those to have already declared in favour of a major strike; are union members from the state rail company, SNCF, and gas and electricity companies.

The French upper house, the Senate, is currently voting on the pension reform plans, article by article.


INDIA:

AIR TRAVEL SOARS IN INDIA
Demand for air travel in India is growing faster than anticipated. But an overloaded infrastructure threatens the ability of airlines and other aviation companies to tap the otherwise promising market.

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Asian Pacific Markets:

ASIAN SHARES DECLINE TUESDAY
Asian share markets fell, with banking stocks in China and Hong Kong weakening on a reported move by Beijing to temporarily raise reserve requirements on six banks. Earnings disappointment and concerns over a stubbornly strong yen also hammered the Tokyo market.

South Korea's Kospi Composite lost 1.5%, Hong Kong's Hang Seng Index was off 0.5% and China's Shanghai Composite fell 0.3%.

Asian policy makers appeared to see little mid-term respite for the dollar despite the greenback holding firm on Tuesday against most of its counterparts, while stocks also traded down ahead of the U.S. corporate earnings season.

Asian authorities worried about currency appreciation have moved to stem inflows of hot money that could also impact on their exports following an IMF meeting at the weekend that did little to reassure markets.

 
CHINA:

China's central bank auctioned 22 billion yuan ($3.3 billion) of one-year bills in open-market operations on Tuesday at a yield of 2.0929 percent, unchanged from the last sale and in line with market expectations.

Traders had expected the People's Bank of China to keep the one-year bill yield steady because of its reluctance to send any market signals that it wants to lift benchmark interest rates.

China's State Administration of Foreign Exchange (SAFE) on Tuesday urged market players to get used to two-way exchange rate movements, saying that its policy of currency reform did not necessarily equate to yuan appreciation.
 
Cnooc Ltd. and Oklahoma City-based Chesapeake Energy Corp.'s, announced that Cnooc will purchase a 33.3% interest in its 600,000-acre Eagle Ford shale assets for an initial $1.08 billion in cash, in an agreement due to be completed by the end of the year.


JAPAN:

Tokyo Shares End Down On Strong Yen

Tokyo stocks fell sharply on Tuesday as investors were spooked by the dollar's fall to near a 15-year low against the yen, while sentiment was also soured by heavyweight Fast Retailing's unexpected cut to its full-year profit forecast.

The Nikkei Stock Average slid 200.24 points, or 2.1%, to 9,388.64, its biggest percentage loss since September 8. The Topix index of all the Tokyo Stock Exchange First Section issues also declined 14.84 points, or 1.8%, to 824.60, with 32 of 33 Topix subindexes ending in negative territory.

Bellwether exporter shares such as Honda Motor fell 2.0% to Y2,930 on the yen's appreciation against both the dollar and the euro.

Tokyo Electric Power slid 4.5% to Y1,900 on massive volume, after hitting a new year-to-date low of Y1,882, on selling by short-term investors as the pricing window for its capital increase share offer opens today through Thursday. Tepco announced late last month that it will raise up to $6.6 billion to finance massive energy-related capital outlays at home and abroad.


Japan said it would wade into the foreign exchange market anew if need be to weaken the yen, despite widespread disapproval by its rich-country peers of a rare bout of dollar buying last month.


AUSTRALIA:
Australia's S&P/ASX 200 was down 1.6%,


WORLD FOREX CURRENCIES SNAPSHOT:
(TUESDAY, OCT 12, 2010 4:15 PM)
EUR/USD     1.3912     +0.0028 (0.20%)
USD/JPY     81.8700 -0.2000 (-0.24%)
GBP/USD     1.5776     -0.0120 (-0.75%)
CAD/USD     0.9894     +0.0023 (0.24%)
USD/HKD     7.7581     -0.0005 (-0.01%)
USD/CNY     6.6733     +0.0054 (0.08%)
AUD/USD     0.9861     +0.0020 (0.20%)



WORLD MARKETS SNAPSHOT:
(TUESDAY, OCT 12, 2010 4:15 PM)
Shanghai     2,841.41     +34.47 (1.23%)
Nikkei 225     9,388.64     -200.24 (-2.09%)
Hang Seng Index     23,121.70     -85.61 (-0.37%)
TSEC     8,090.22     -86.54 (-1.06%)
FTSE 100     5,661.59     -10.81 (-0.19%)
DJ EURO STOXX 50     2,775.75     -13.97 (-0.50%)
CAC 40     3,748.86     -19.63 (-0.52%)
S&P TSX     12,575.64     +40.05 (0.32%)
S&P/ASX 200     4,618.20     -79.30 (-1.69%)
BSE Sensex     20,203.34     -136.55 (-0.67%)

TUESDAY'S US ECONOMIC CALENDAR:

7:45 a.m.
ICSC-Goldman Sachs Chain Store Sales Index - WoW (previous -0.8%), YoY (previous +2.4%)

8:55 a.m.
Oct 9 Johnson Redbook Retail Sales Index MoM % Change (previous -0.4%), 12MonChgPct (previous +2.6%), 52WkChgPct (previous +2.7%)

10:00 a.m.
Oct IBD/TIPP Economic Optimism Index Economic Optimism Index (previous 45.3), 6-Month Economic Outlook (previous 44.2)

10:00 a.m.
Sept. US Employment Trends Index (ETI) (previous 96.7), MoM Change (previous -0.8%)

11:45 a.m.
Federal Reserve Bank of Kansas City President Thomas Hoenig speech at NABE event

12:20 p.m.
ECB President Jean-Claude Trichet speech in New York

2:00 p.m.
Federal Open Market Committee meeting minutes

5:00 p.m.
Oct 10 ABC News Consumer Confidence Index (previous -47)

MARKET SUMMARY, MONDAY OCT. 11, 2010:

Stocks:
U.S. stocks were mostly higher as investors grew cautiously hopeful for several bellwether third-quarter earnings reports due in coming days. Investors said confidence is high for the start of the technology sector's third-quarter earnings even though several companies, including Intel, have already warned their third-quarter revenue could take a hit from weaker consumer demand.

Treasurys:
The Treasury market was shut in observance of Columbus Day.

Forex:
In thin trading marked by holidays in the US, Canada and Japan, the dollar advanced slightly as traders remained focused on the likelihood of more policy-easing measures from the Federal Reserve. Such measures would keep US interest rates ultra-low, which makes dollar-denominated assets less attractive to investors from abroad.



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