U.S. MARKET AVERAGES

Stocks were expected to open mixed on cautious outlook from Microsoft, but better-than-anticipated growth of Gross Domestic Product in the third quarter sent the averages higher. The Commerce Department said economic activity expanded 3.8% in the July-September quarter, besting economists'' forecast for 3.6% and rising higher over the 3.3% increase in the second quarter. The upbeat news brought a great relief to the market, signaling that the economy was strong enough to withstand the destructive impact of hurricanes Katrina and Rita.

Energy stocks are showing strength with a 1.4% advance in the natural gas sector. Transportation stocks are also strong, helped by a 1.6% rally in the airline sector. Gaming and computer hardware stocks are notable movers to the upside.

The semiconductor sector is currently down 2.1%, with Maxim Integrated Products (MXIM: chart) dropping about 12% on earnings related news. KLA-Tencor (KLAC: chart) is also down sharply on earnings.

On the earnings front, Microsoft posted fiscal first-quarter earnings rise of 24% on strong demand, but lowered guidance. Baker Hughes Inc., oil services company, said third-quarter net profit rose 61% on price increases, productivity improvements, and a lower effective tax rate. Bristol-Myers Squibb, drug maker, reported Q3 27% net income increase, but adjusted earnings missed estimates. The company lowered its full-year outlook. Overseas, Deutsche Bank reported a 46% rise in net income during the third quarter on sales and tradingrevenue, as well as growing mutual fund sales in Germany.

MOVERS AND SHAKERS

Software giant Microsoft (MSFT: chart) reported a 24% increase in first-quarter profit, although it issued lower estimates. The company announced that profit for the three months ended September 30 increased to $3.14 billion, up from $2.53 billion for the same period a year ago. This year''s earnings include a charge of $361 million connected to the company’s legal settlement with RealNetworks Inc. (RNWK: chart). Microsoft stock jumped 0.5%.

KLA-Tencor’s (KLAC: chart) announced earnings and revenue outlooks that were lower than expectations. The company’s shares fell 5.4%.

ECONOMIC NEWS

Even with the impact of Hurricanes Katrina and Rita during the period, economic growth accelerated during the third quarter, according to government data released Friday.

The U.S. Commerce Department revealed that Gross Domestic Product, a broad measure of the economy, grew at an annual rate of 3.8% in the July-to-September quarter. This was an acceleration from the 3.3% growth rate shown during the previous 3-month period.

The government reported that a pick up in personal consumption expenditures and in federal government spending contributed to the acceleration of GDP growth, as did a smaller decrease in private inventory investment. These factors were partially offset by decelerations in exports, in residential fixed investment, and in state and local government spending.

Personal consumption expenditures climbed by 3.7% in the third quarter, the government said, an acceleration from the 3.3% growth recorded in the previous period. However, excluding the volatile food and energy sectors, personal consumption expenditures advanced by just 1.3%, a decline compared to the second quarter''s 1.7% growth rate.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks closed broadly down with the Nikkei falling 0.5% on disappointing industrial production report, showing 0.2% output increase .versus expectations of a 2% growth. The other regional markets finished the session with heavy losses. South Korea’s Kospi dropped 2.2%, Hong Kong’s Hang Seng declined 1.2%, and Australia’s All Ordinaries lost 1.1%.

European markets traded lower at mid-day, hurt by weak U.S. equity markets, decline in the automotive sector, and earnings report from Microsoft. Gains from Deutsche Bank, GlaxoSmithKline and Vodafone offset some of the losses. The German DAX 30 lost 0.1%, the French CAC 40 shed 0.3%, and London’s FTSE 100 was down 0.1%.

ENERGY, METALS, CURRENCIES

Crude oil prices steadied round $61 a barrel. Light sweet crude December contract rose 1 cent to $61.10 a barrel on the Nymex. Heating oil fell marginally to $1.8490 a gallon. Gasoline inched down to $1.5925. London Brent gained 6 cents to $59.20.

Gold futures further advanced in European trading on weaker dollar. In London gold traded at the recommended price of $473.65 per troy ounce, up from $472.80. In Zurich it traded at $473.35, up from $473.15. In Hong Kong the precious metal rose 40 cents to close at $474.05. Silver opened at $7.81, up from $7.80.

In European trading the U.S. dollar traded mixed against its major counterparts. The euro was quoted at $1.2147, up from $1.2143. The dollar changed hands at 115.24 yen, down from 115.31. The British pound was trading at $1.7807, down from $1.7843.

EARNINGS NEWS