9:45AM Stock markets opened lower on inflation data and Intel’s downgrade.
U.S. stock markets declined, following inflation data. Downgrade of chip maker Intel also weighed, as the stock fell 3% after Goldman Sachs cut its rating on the stock. In corporate news, Eli Lilly said it will buy joint venture partner Icos Corp. for $2.1 billion cash in a move to get full ownership of the top-selling impotence treatment, Cialis. Lilly will pay $32 per share for each Icos share, a premium of about 18% to Monday's closing price of $27.12. In the first hour of trading, the Dow gave up 51.55, or 0.43%.The Standard & Poor's 500 index was down 7.95, or 0.58%, and the Nasdaq composite index fell 27.28, or 1.15%. Concern about inflation helped foster a rally in bonds, with the yield on the benchmark 10-year Treasury note falling to 4.73% from 4.79% late Monday.


Industrial production fell more than expected.
The Federal Reserve released its report on industrial production and capacity utilization in the month of September on Tuesday. The report showed bigger than expected declines in both industrial production and capacity utilization. The report showed that industrial production fell 0.6 percent in September after coming in unchanged in August. Economists had expected production to fall 0.1 percent compared to the 0.1 percent decrease originally reported for the previous month. The drop in industrial production was due in large part to a steep decline in utilities output, which fell 4.4 percent in September after falling 0.9 percent in August. Output in the manufacturing sector fell 0.3 percent in September, while the output at mines expanded 0.7 percent. The Federal Reserve also said that the capacity utilization rate fell to 81.9 percent in September from a revised 82.5 percent in August. Capacity utilization had been expected to edge down to 82.2 percent in September from the 82.4 percent originally reported for the previous month. Capacity utilization in the utilities sector fell to 84.4 percent in September from 88.3 percent in August, while capacity utilization in the manufacturing sector edged down to 80.8 percent and capacity utilization in the mining sector rose to 91.6 percent.

Wholesale prices dropped 1.3%.
Tuesday morning, the Department of Labor released its closely watched report on wholesale prices in the month of September. The report showed that overall prices fell much more than expected, while core prices rose more than economists had anticipated. The Labor Department said that its producer price index fell 1.3 percent in September after edging up 0.1 percent in each of the two previous months. Economists had expected a more modest decline of about 0.7 percent. The decline in wholesale prices was largely due to a steep drop in energy prices, which fell 8.4 percent in September after rising 0.3 percent in August. The Labor Department said that the drop in energy prices came as gasoline prices fell 22.2 percent in September. While the prices for home heating oil, liquefied petroleum gas, residential electric power, and diesel fuel also turned down after rising in August, prices for residential natural gas increased 1.8 percent in September.

The report also showed a slowdown in the pace of growth in prices for foods, as prices for fresh and dry vegetables and eggs rose less than in the previous month. Prices for fresh fruits and melons, processed young chickens, and processed turkeys turned lower in September. At the same time, the report showed that the core producer price index, which excludes food and energy prices, rose 0.6 percent in September after falling 0.4 percent in August. The increase exceeded economist estimates of an increase of about 0.2 percent. The increase in core prices was partly due to an increase in prices for light motor trucks, which rose 3.5 percent in September after falling 3.4 percent in August. Prices for passenger cars, alcoholic beverages, and mobile homes also turned higher in September.

9:30AM London gives up record highs on weakness in banking sector.
The FTSE 100 in London was down 19.8 points to 6,152.4 by mid-day.

Economic news

The Office for National Statistics said the consumer price index annual rate dropped to 2.4% in September, from 2.5% the month before. The largest downward effect came in transport, reflecting a record 6.4p per litre drop in the cost of low sulphur petrol.

Advancers

As crude prices traded closer to $60 a barrel, BP was 1.3% and Royal Dutch Shell rose 0.7% Clinton Cards sales are up by 1.8% in the new financial year to date even though the trading environment remains difficult. It gained 4.51%. Marketing services group Media Square rejected an offer for several of its businesses. The company surged 30%.

Decliners

Lloyds TSB fell 1.5% to 570½p as long-running takeover talk linking it to a US bidder failed to materialise. news that Naguib Kheraj, its highly-respected finance director, would leave the company next year dragged Barclays 1.5% lower.

In the same sector, Royal Bank of Scotland lost 1.2% lower and Northern Rock eased 0.7%. Rolls-Royce lost 1.3% as JP Morgan initiated coverage with an underweight rating. Kingfisher fell 1.4% after Morgan Stanley also cut its rating from equal-weight to underweight. Isoft slipped 0.9% after it warned of a 10-15% decline in interim and full-year profits after problems with NHS contracts.

Bellway fell 1.7% , coming off a strong run-up to forecast-beating interim numbers, as investors booked profits from the stock. And in the small caps, Chariot UK, the lottery operator that floated on Aim this year slumped a further 86%.

Other news

Macquarie, the Australian bank, on Monday night won the hotly contested auction for Thames Water, the biggest water company in the UK, which is being sold by RWE, the German utility group, in a deal valued at 8 billion pounds.


9:00AM Stock futures declined on higher core PPI index.
A bigger-than-expected rise in core wholesale inflation put futures under pressure Tuesday. The Labor Department said the biggest decline in the seasonally adjusted producer price index in three years. It said that wholesale prices dropped 1.3% in September as the price of energy goods tumbled at the fastest rate in 20 years. Meanwhile, the core producer price index surprisingly rose 0.6%, as the prices of motor vehicles jumped at the fastest rate in more than 15 years. S&P 500 futures fell 4.60 points at 1,371.50- and Nasdaq 100 futures dropped 10.75 points at 1,730.50. Dow industrial futures were down 30 points at 12,002.

Quarterly releases before the opening bell came from corporate heavyweights United Technologies, Merrill Lynch and Johnson & Johnson. United Technologies Corp. (UTX: chart) reported Q3 earnings of $996 million, or 99 cents a share, up from a year-ago profit $821 million, or 81 cents a share, exceeding expectations of 96 cents on billion of $11.92 billion. The company raised its 2006 earnings guidance. Johnson & Johnson (JNJ: chart) said Q3 net earnings rose to $2.76 billion, or 94 cents a share, from $2.54 billion, or 85 cents a share, beating estimates of 93 cents on revenue of $13.08 billion. Sales to customers rose to $13.29 billion from $12.31 billion. Shares of the two companies gained by 1% in pre -open. Merrill Lynch (MER: chart) reported doubled third-quarter earnings, beating analyst estimates. Quarterly profit was $3 billion, or $3.17 per share, compared to $1.36 billion, or $1.40 per share last year. The latest results included a gain of $1.1 billion, or $1.17 per share, from the combination of Merrill''s investment management unit with BlackRock. The stock rose 2% in pre-open trading.

In corporate news, Corus Group (CGA: chart) said it''s in talks to be bought by India''s Tata Steel in a deal that would value the Anglo-Dutch steelmaker at $7.6 billion.