U.S. MARKET AVERAGES

- September CPI rose 1.2%, the largest jump in 25 years and core CPI up 0.1%.
- September retail sales were up 0.2%, market expected 0.5%.
- Preliminary October Confidence Index from U of Michigan, 75.4 vs. expected 80.
- Dow 0.69% up, Nasdaq 0.86% up and S&P 0.83% up
- 10 year bond 4.49%

Rise in CPI, less than expected rise in retail sales, and lower than expected level of consumer confidence put the market at the opening in the defensive mood. The week of sell-off in Nasdaq, Dow and S&P was not that easily forgotten in the day’s trading.

GE, Boston Scientific, United Healthcare and Knight Ridder reported better than expected earnings. This combined with fall in oil prices in the late morning trading lifted tech stocks only. In the mid-afternoon the mild recovery in stocks spread to other sectors including home builders, industrial stocks, financials and retailers. In the last hour the rally spread to energy sector as well despite the falling crude, gasoline and natural gas prices. Gasoline priced touched six-month low during the session. In the last thirty minutes of trading market averages were firmed the positive lead to settle higher.

MOVERS AND SHAKERS

General Electric Co. (GE: chart) is expected to gain after the industrial conglomerate reported third-quarter revenue that beat analyst expectations. The company’s third-quarter net income increased to $4.68 billion, or 44 cents a share, compared with $4.07 billion, or 38 cents a share, for 2004.

General Motors is pressing for a quicker resolution with UAW, United Auto Workers union to resolve annual health bill of $5.5 billion covering retirees. The recent bankruptcy filing of Delphi Corp has put additional pressure on General Motors (GM: chart) finances. GM may be liable to as much as $11 billion of pension obligations of Delphi employees and retirees.

United Health Group (UNH: chart) gained better than $2 during the session after reporting

Ford Motor Co. (F: chart) could be under pressure after Citigroup cut the company to “sell” and reduced its price target by $3. Stock closed 3.5% lower on the downgrade.

Chip maker Texas Instruments (TXN: chart) fell 2.2% after Bear Stearns downgraded its rating to “peer perform” from “outperform” because of increased competition, pricing pressure and a slower expected growth rate for its digital light processing business in 2006.

Continental Airlines Inc. (CAL: chart) was upgraded by Lehman Bros to “equal-weight” from “underweight”, citing hopes that industry fundamentals are improving as domestic carriers finally begin to cut down capacity. The broker said that Continental will surely benefit from an improving domestic pricing environment. Continental jumped 3.8%.

United Parcel Services Inc. (UPS: chart) is expected to gain after J.P. Morgan upgraded the company to “overweight” from “neutral”, pointing multiple potential drivers of growth including international parcel, supply chain services and acquisitions. The broker said that the domestic market is stabilizing. UPS fell 0.9% yesterday.

Hilton Hotels Corp. (HLT: chart) is in talks to acquire the hotel division of British company Hilton Group Plc. for 3.6 billion pounds ($6.3 billion). The deal would unite the North American and British-based international Hilton brands for the first time in more than 40 years. Hilton Group (HG: chart) was up 12.1% in London trading..

ECONOMIC NEWS

Consumer prices rose particularly sharply in the month of September, according to a report from the Department of Labor, with the increase exceeding economist estimates. The sharp rise in prices was largely due to a significant increase in energy prices.

The Labor Dept. said that consumer prices rose 1.2 percent in September after rising 0.5 percent in each of the two previous months. Economists had been expecting a somewhat more modest increase of about 0.9 percent.

Industrial production fell more than expected in September, according to a report from the Federal Reserve, reflecting the impacts of Hurricanes Katrina and Rita and a strike at a major aircraft producer. The report also showed a bigger than expected drop in capacity utilization.

The Federal Reserve said that industrial production fell 1.3 percent in September following an upwardly revised 0.2 percent increase in August. This marks the steepest monthly drop in 23 years.

Economists had been expecting a much more modest decline of about 0.4 percent compared to the 0.1 percent increase originally reported for August.

Friday morning, the Department of Commerce released its closely watched report on retail sales in the month of September, showing that sales rebounded modestly after falling sharply in August.