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Stock Market Update for 10/05/2010

October 5, 2010

Stocks are notably higher in mid-morning trading on Tuesday, bouncing back from yesterday’s weakness after a better than expected reading on service sector activity and central bank decisions in Japan and Australia.

The major averages have seen further upside in recent trading, rising to new highs for the session. The Dow is up 124.12 points or 1.2 percent at 10,875.39, the Nasdaq is up 38.45 points or 1.6 percent at 2,382.97 and the S&P 500 is up 15.89 points or 1.4 percent at 1,152.92.

Activity in the service sector expanded for the ninth consecutive month in September, according to a report released by the Institute for Supply Management a short time ago, with the data also showing that the pace of growth accelerated by much more than anticipated.

The ISM said its index of activity in the service sector rose to 53.2 in September from 51.5 in August, with a reading above 50 indicating growth in the sector. Economists had been expecting the index to edge up to a reading of 51.8.

Earlier, the Bank of Japan cut its benchmark interest rate to almost zero as it seeks to revive a faltering recovery. Under pressure from the government, the BOJ cut rates to 0.0-0.1 percent from 0.1 percent.

The central bank also unveiled a new asset purchase program to buy up government bonds and boost liquidity in the deflation-wracked economy.

As much as 5 trillion yen, or $60 billion, has been earmarked by the central bank to purchase government bonds, treasury bills and corporate bonds in an effort to weaken the local currency and improve liquidity in the world’s third largest economy.

Separately, the Reserve Bank of Australia surprised analysts by holding its interest rate at 4.50 percent, contrary to expectations of a 25-basis point rate hike. However, the central bank cautioned about further hikes before the end of the year.

In corporate news, fertilizer producer Mosaic Co. (MOS) said that its first quarter profit nearly tripled from last year, mainly due to significantly higher potash sales and improved phosphate selling prices. However, the company’s quarterly earnings came in below analysts’ expectations.

Women’s apparel retailer Talbots Inc. (TLB) reiterated its earnings outlook for the third quarter and fiscal year 2010 but lowered its forecast for sales growth for both periods. The company also projects 75 to 100 store closings by the end of 2013 as part of its three-year strategic plan.

Meanwhile, drugstore chain Walgreen Co. (WAG) announced that its comparable store sales in September saw 0.4 percent growth, while it also reported a 5.3 percent increase in total sales.

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