U.S. MARKET AVERAGES

A sharp jump in industrial productivity, the biggest surge in two years, lifted market sentiment today. Investors welcomed data, released by the Labor Department that the third-quarter productivity rose 4.7 %o versus the summer. This news helped labor costs go lower, easing fears of inflation on Wall Street. Although averages cameoff their intraday highs, they are trading higher.

Stocks were supported at opening by oil prices below $60 a barrel after yesterday’s rally. Time Warner Inc. is expected to be in the focus on speculation about what it will do with its AOL division.

In midmorning trading, the Dow Jones industrial average rose 27.53, or 25%. The Standard & Poor''s 500 index added 3.20, or 0.25% and the Nasdaq composite index climbed 8.47, or 0.38%.

Bonds came back after losses in the previous session, with the yield on the 10-year Treasury note falling to 4.54 percent from 4.57 percent late Monday

The semiconductor sector is an early mover to the upside, helped by a 5% rise in Maxim Integrated Products (MXIM: chart), which raised its quarterly guidance. The computer hardware and disk drive stocks were also notable movers to the upside.

The airline sector ticked higher in the early going, helped by a moderation in oil prices. Housing and retail stocks are also contributing to Tuesday''s early rally.

In corporate news, Time Warner Inc.''s talks with Microsoft Corp. and Google Inc about a number of possible deals largely don''t involve either company buying a stake in the AOL Internet-service unit. The deal ideas center on Web search, ad sales and possibly other fields. Time Warner plans to drop Google as its primary provider of Internet search and use Microsoft''s MSN instead. Microsoft and Time Warner are considering creating a joint advertising sales force to sell ads across AOL and MSN.

Cephalon Inc. said it''ll pay around $360 million in cash to buy Zeneus Holdings to speed into entry in the European oncology market.

MOVERS AND SHAKERS

Dillard''s Department Stores (DDS: chart), retailer, reported narrower Q3 loss of $2.7 million, or 3 cents a share vs. $18.7 million, or 23 cents a year ago, exceeding analyst estimates of 21 cents quarterly loss. Company’s sales rose to $1.73 billion with same-store sales 2% higher compared with last-year figures. The stock gained 7.1%.

G-III Apparel Group Ltd. (GIII: chart), sportswear maker, reported Q3 net income rise of $14.8 million, or $1.73 a share compared with $9.9 million, or $1.33 a share a year ago. Sales climbed 62% to $186.6 million largely due to the acquisition of Marin Richards stock and assets from Winlit. The company projected 2006 net income in the range of 85 cents to 90 cents a share, including an 11-cent non-cash charge. The stock gained 8.4%.

ECONOMIC NEWS

The U.S. Department of Labor released its revised reading for third-quarter productivity on Tuesday, with the measure now showing a 4.7% seasonally adjusted annual growth rate. When the statistics were first reported in early November, the government said productivity increased by a rate of 4.1%. Unit labor costs were revised to a decline of 1%, compared to the previous-reported estimate of a 0.5% slide.

Meanwhile, factory orders data are due out after the start of trading. Economists expect the measure to increase by about 2% for October, reversing September''s 1.7% decline.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks closed mostly lower after the Nikkei retreated from multi-year highs, losing 0.8% on profit taking. High-tech stocks declined on concerns that the sector gained rather fast during the rally, financial shares attracted investors. Among other regional markets, Hong Kong’s Hang Seng dropped 1.1% on rising oil, Australia’s All Ordinaries lost 0.2%, while South Korea’s Kospi gained 0.5%.

European markets gained ground at mid-day, shrugging off lower U.S. markets close Monday and supported by financials like British bank HBOS and telecom-equipment maker Ericsson. The German DAX 30 gained 0.7%, the French CAC 40 advanced 0.5%, and London’s FTSE 100 rose 0.3%. The euro slipped 0.2% to $1.1762.

OIL, METALS, CURRENCIES

Crude oil prices slipped below $60 a barrel after rally, despite cold weather forecast. Light sweet crude for January delivery fell 20 cents to $59.77 a barrel on the Nymex. Heating oil lost 2 cents to $1.7695 a gallon. London Brent dropped 25 cents to $57.48.

European gold surged to a 25-year high, driven by inflation worries and strong interest in commodity investment. In London the precious metal was fixed at $510 per troy ounce, up from $505.05. In Zurich gold traded at $508.03, up from $505.45. In Hong Kong gold rose $2.30 to close at $508.55. Silver traded at $8.64, up from $8.55.