Morning update

U.S. stocks fell for a second straight session on Tuesday as credit worries hit bank shares and a report showing inflation remains a threat despite slower growth stoked the market's anxiety. Fears that U.S. home finance firms Fannie Mae and Freddie Mac may need a government bailout soured investors on financial shares for a second day even after Freddie had little trouble selling new debt. Financial companies were the biggest drag on the Dow and the S&P 500, with top mortgage lenders Bank of America and Wells Fargo down more than 3 percent each. The KBW index of bank stocks fell 3.4 percent. The Dow Jones industrial average fell 130.84 points, or 1.14 percent, to 11,348.55. The Standard & Poor's 500 Index slid 11.91 points, or 0.93 percent, to 1,266.69. The Nasdaq Composite Index lost 32.62 points, or 1.35 percent, to 2,384.36.

Britain's blue-chip index fell for the third session in a row to end over 2 percent lower on Tuesday as credit fears and U.S. data dragged financials lower, while a sprinkling of bid activity kept a few stocks afloat.  The FTSE 100 shed 129.8 points, or 2.4 percent, to 5,320.4 -- its largest one-day fall in over a month. The UK's benchmark index is down 17 percent for the year to date. UK banks accounted for over 47 negative index points, with Barclays, Royal Bank of Scotland, HSBC, HBOS, Lloyds TSB and Standard Chartered down 4.3 to 7.4 percent. 

The Nikkei average sank 2.3 percent to a one-month closing low on Tuesday as investors sold exporters and banks on renewed concern that U.S. financial woes are far from over. The sell-off came after U.S. stocks tumbled on the prospect of more losses from the mortgage crisis, with shares in Fannie Mae and Freddie Mac tumbling after Barron's reported the U.S. Treasury may need to bail out the home finance giants. Adding to the bleak macroeconomic picture, the Bank of Japan cut its assessment of the economy on Tuesday while keeping its interest rate target unchanged at 0.50 percent by a unanimous vote, as widely expected. The benchmark Nikkei ended down 300.40 points at 12,865.05. The broader Topix declined 2.2 percent to 1,235.54.

Australian shares are set to fall on Wednesday after a decline in the Dow Jones. Share index futures fell 32 points to 4,830.0, a 36.4 point discount to the 4,866.4 close of the underlying S&P/ASX 200 index on Tuesday. Earnings reports are to be released on Wednesday by Oxiana, Pacific Brands, AGL Energy, Brambles, James Hardie, Coco-Cola Amatil, Macquarie Airports and Crown.

The U.S. dollar fell for a second day on Tuesday, hit by a bout of profit-taking after recent sharp gains, as crude oil prices rose and stocks on Wall Street sagged on renewed worries about the financial sector. While the greenback's drop set the euro on track for its best one-day gain in a month and put the New York Board of Trade's dollar index on course for its worst daily loss in about five weeks, analysts shrugged it off as a pause before the resumption of an upward trend. The euro climbed to a session high of $1.4791, recovering from a six-month low of $1.4631 earlier, according to Reuters data. It was last at $1.4768, up 0.5 percent. The dollar dropped to a session low of 109.56 yen. It was last down 0.3 percent to 109.78 yen. The euro rose 0.2 percent to 162.09 yen, after earlier hitting a three-month low at 160.87 yen.

Longer-dated U.S. Treasury debt prices fell on Tuesday as a competing offer of debt by Freddie Mac drew investors away from lower-yielding U.S. government debt. The $3 billion debt sale by the mortgage finance giant alleviated some concerns that Freddie and Fannie Mae might have trouble accessing capital outside of any emergency government backing. Benchmark 10-year Treasuries slipped 6/32 in  price for a yield of 3.84 percent from 3.82 percent late on Monday, while 2-year Treasury notes rose 1/32, their yields easing to 2.32 percent from 2.33 on Monday.

Gold ended higher on Monday as U.S. dollar weakness prompted broad gains in commodities, but platinum finished lower after hitting an 11-month low during Asian trading. Traders said gold was forming a new base that could result in more gains. Gold was at $810.70/811.90 by New York's last trade at 2:15 p.m., up from $799.65/801.05 its U.S. market close on Monday. The precious metal started the session lower, slumping to a session low of $782.05. The dollar weakened across the board as U.S. stocks dropped and investors took profits on the greenback's recent steep gains. The dollar's slump triggered a broad-based rally in commodities and crude oil. Silver slipped to $13.14/13.20 an ounce from $13.07/13.13 an ounce, having earlier touched a low of $12.45.  

Copper and other base metals rallied on Tuesday as the dollar weakened and as a jump in oil prices fuelled buying of commodities as a hedge against inflation.   Nickel jumped 7.3 percent to close at $19,395 a tonne, as the metal, mainly used in stainless steel production, was also boosted by news that Xstrata was suspending operations at its Falcondo ferronickel mining operation in the Dominican Republic. Copper for delivery in three months on the London Metal Exchange (LME) rose to $7,575 a tonne from $7,355 at the close on Monday. In New York, copper for September delivery jumped 12.0 cents to $3.4350 per lb on the New York Mercantile Exchange's COMEX division.   Energy-intensive aluminium, used in packaging and transport, rose to $2,777 a tonne from $2,755. Lead rose to $1,800 from $1,695 a tonne at the close on Monday. 

U.S. crude oil futures ended higher on Tuesday, snapping a three-day losing streak, as the dollar fell back, prompting investors to buy into commodities. Weekly government inventory data due on Wednesday calling for a fourth week of a heavy drawdown on gasoline stocks pulled RBOB gasoline futures sharply higher. Heating oil futures also rose sharply, despite the forecast for a rise in distillates, heating oil's product category. On the New York Mercantile Exchange, September crude settled up $1.66, or 1.47 percent, at $114.53, after trading from $111.64 to $116.65. In London, October Brent ended up $1.31, or 1.17 percent, at $113.25 a barrel, trading from $110.70 to $115.38.

Source: Reuters