1:00PM NY, 5:00 PM Frankfurt European markets closed higher, boosted by financial stocks.

European stock markets erased earlier losses to finish higher Tuesday, boosted by financial shares and U.S. economic data which raised hopes of interest-rate cut in the near term. Banking stocks gained on the back of comments from the chief executive of Deutsche Bank who said there are signs that markets are beginning to stabilize. Stock indexes in Germany and the U.K. climbed 1%, while France ended up 0.4%.

In Frankfurt, Deutsche Bank drove financial stocks higher after its CEO said there were signs of markets recovery. Germany''s largest bank climbed 2.9%, followed by Commerzbank with an increase of 2.1%. In the tech sector, chip maker STMicroelectronics rose 1.6%, while the maker of semiconductor equipment ASML gained 2.1%. Among other gainers, car maker DaimlerChrysler and drug producer Bayer rose 1.2%, each.

In Paris stocks gained, paced by Societe Generale and Unibail-Rodamco. Societe Generale added 2.1% after Merrill Lynch raised its rating on the stock. Real-estate investment trust Unibail climbed 4.3%, following an upgrade. On the negative side, carmaker Peugeot dropped 3.6% after it unveiled ambitious new sales and margins targets.

In London oil stocks were also in focus on rising crude oil price. Royal Dutch Shell rose 3% as UBS upgraded the stock to buy from neutral and said it considers a recent pullback in the oil major a buying opportunity. The second-biggest oil company BP added 1.9%. Mining shares also performed well, with shares of copper miner Kazakhmys, up 2.6%. The company announced a 25% profit rise, plans to buy 19% of another Kazakh miner for $810 million and a $400 million stock repurchase. Two Irish companies also stood out among gainers. Dairy producer Kerry Group jumped 6% and bookmaker Paddy Power rose 4.8% on strong first-half results.


11:30AM Market averages rebounded, as weaker economic data raised rate-cuts optimism.

U.S. stocks rebounded Tuesday, as a slowdown in manufacturing growth and construction spending boosted investor optimism that the Fed Reserve will cut its key federal funds rate in two weeks. The ISM reported that the manufacturing sector expanded at a slower pace. The ISM index fell to 52.9% in August from 53.8% in July. In another report, the Commerce Department said construction spending fell in July by 0.4%, the largest amount in six months.

Tech shares posted considerable strength, led by Apple and Yahoo. Apple (APPL: chart) rose 3.1% amid speculations that sales of the company''s Macintosh computers are exceeding estimates. The company is expected to release an improved version of its iPod. Shares of Yahoo (YHOO: chart) shot up 5.5% on deal speculations. Bear Stearns named the company as a top pick for the next 12 to 16 months.

Among other standouts in the tech sector, Dow component Intel (INTC: chart) traded up 2.3%, as Banc of America Securities increased its price target to $31 from $29, while chipmaker Advanced Micro Devices (AMD: chart) gained 2% on Credit Suisse upgrade. Dow member Verizon Communications (VZ: chart) rose 1.8% to lead the index higher.

Pharmaceutical stocks were among the most actively traded. Dow component Merck & Co. (MRK: chart) lost 0.7%. It released positive results Sunday on its experimental cholesterol drug. Eli Lilly & Co. (LLY: chart) gained 1.1% after researchers said an experimental drug for schizophrenia appeared safe without some of the side effects of other drugs.

Boston Scientific (BSX: chart) jumped 2.8% and Johnson & Johnson (JNJ: chart) edged up on news that drug-coated heart stents produced by the companies may not increase the risk of blood clots as much as previously thought.

In late morning trading, the Dow Jones industrial average rose 42.35, or 0.32%, to 13,400.09. The Standard & Poor''s 500 index added 10.13, or 0.69%, to 1,484.12, and the technology-dominated Nasdaq composite index jumped 27.72, or 1.07% to 2,624.08.


The ISM manufacturing index fell to 52.9% in August.

Tuesday morning, the Institute for Supply Management released its report on economic activity in the manufacturing sector in the month of August, showing that the pace of growth in the sector slowed compared to the previous month. The ISM said that its index of activity in the sector fell to 52.9 in August from 53.8 in July, although a reading above 50 still indicates growth in the sector. Economists had been excepting the index to drop to 53.0.

The slowdown in the pace of growth in the sector was due in part to slower new orders growth, with the news orders index falling to 55.3 in August from 57.5 in the previous month. On the other hand, production saw faster growth in the month of August, as the production index rose to 56.1 from 55.6 in July. Employment growth also accelerated, with the employment rising to 51.3 from 50.2. The report also showed a slowdown in the pace of price growth, as the prices index dipped to 63.0 in August from 65.0 in July. The index still indicates a relatively fast rate of price growth.


Construction spending fell 0.4% in July.

The Department of Commerce released its report on construction spending in the month of July on Tuesday, showing that spending fell much more than expected compared to an upwardly revised reading for the previous month. The report showed that spending fell 0.4 percent in July following a revised 0.1 percent increase in June. Economists had expected spending to fall 0.1 percent compared to the 0.3 percent decrease originally reported for the previous month. With the decrease, construction spending fell to a seasonally adjusted annual rate of $1,169.1 billion, 2.0 percent below the July 2006 estimate of $1,192.9 billion.

The bigger than expected drop in construction spending, which was the steepest drop in six months, was largely due to a 0.7 percent drop in spending on private construction. The Commerce Department said that spending on residential construction fell 1.4 percent in July, more than offsetting a 0.4 percent increase in spending on non-residential construction. The drop in spending on private construction was partly offset by an increase in spending on public construction, which rose 0.7 percent. While spending on education construction rose 1.9 percent, spending on highway construction fell 0.8 percent.