U.S. MARKET AVERAGES

Averages meandered for the morning session only to confront inflation scare in the afternoon. Market averages succumbed to spread of Dallas Fed President’s comment of rising inflation pressure and Fed’s need to be “vigilant.” Three major averages declined at close.

In the morning, market digested report from Census Bureau on new orders and shipments indicating rise of new factory orders of 2.5% in August and durable orders up 3.4% revised up from 3.3%. Goldman Sachs upgraded computer hardware sector from Neutral to Attractive but that did not stem the falling prices in the sector. Goldman also downgraded Texas Instrument (TXN: chart) sending another wave of selling in the chip sector. Deutsche Securities upgrade of Linear Technologies (LLTC: chart) did not help the stock in the day’s trading.

It is Google and Sun vs. Microsoft. Google has agreed to distribute Java technology and some of the productivity applications bundled with Google search technologies. Sun’ Star Office is a one example where the marriage of these two organizations will help it build a bigger customer base in direct competition with Microsoft’s Office.

In the past, Sun has not been successful in attracting large group of users to its Java based applications. This partnership hopes to change that. The partnership is likely to provide Office styled desktop application with search technology, all accessible through the Internet. Sun Microsystems (SUNW: chart) shares rose 1.5% and Google (GOOG: chart) shares were down 2% at close. Several lead techies at Google, hail from Sun Micro’ Java tech group.

Home Builder stocks faced another round of scrutiny. An article in NY Times suggested that while stocks of home builders are rising executive at these companies are selling stocks at three to four times higher rate than a year ago. According to the article, executives at the top ten home builders have sold close to $952 million of company shares so far in the year topping sales of $658 million of shares for all of last year. Toll Bros. (TOL: chart) dropped 4%, Centex (CTX: chart) and KB Homes (KBH: chart) and Lennar (LEN: chart) dropped 3%, and D R Horton (DHI: chart) dropped 5%.

Speculators bid up stocks of flash memory makers SanDisk (SNDK: chart) and Lexar Media (LEXR: chart) for the fifth day for different reason. Both stocks advanced better than 8%. Lexar Media won a judgment against Toshiba of app. $420 million and this may lead to more opportunities for licensing flash memory storage technology with other companies. SanDisk has been a subject of speculation at a stock promotion TV show appearing on CNBC. In the last three months SanDisk shares have gained 130%.

MOVERS AND SHAKERS

Printer maker Lexmark International Group Inc. (LXK: chart) lost 22.4%, which is nearly a quarter of their value, after the company predicted third-quarter earnings and revenue would come in well below its forecasts. The company pointed decreasing laserjet and inkjet supplies revenue as a result of a reduction in channel inventories as well as lower end user demand. The prediction is likely to stimulate investors to take a look at rival Hewlett-Packard's (HPQ: chart) outlooks for the rest of 2005. Hewlett-Packard dropped 1% yesterday.

Clorox Co. (CLX: chart) also narrowed its earnings targets for the second quarter and fiscal year due to boosting energy-costs. The Oakland-based company announced it will raise prices on about 40% in order to partly compensate those higher costs. The company fell 1.7% yesterday.

General Motors Corp. (GM: chart) and Ford Motor Co. (F: chart) may attract attention after both were put on CreditWatch by Standard & Poor's after yesterday's close. Both companies are dependant on sport utility vehicles and trucks amid rising energy prices. The ratings agency's move follows the reports by the both automakers about a sudden drop in U.S. vehicles sales for the next month. General Motors added 1.4% while Ford gained 0.3% yesterday.

Procter & Gamble (PG: chart) dropped 1.7% after Citigroup downgraded the company to hold from buy, worried over raw material pricing. The broker said it will limit upside to earnings-per-share estimates. The broker also cut its price target to $59 from $61.

J.P. Morgan downgraded Eastman Kodak (EK: chart) to underweight from neutral, citing its concerns that digital profitability remains weak and its traditional business is declining quickly. The company fell 0.9% yesterday.

Deutsche Bank cut Kimberly-Clark Corp. (KMB: chart) to hold from buy. The broker pointed as a reason that rearranging the health product company to drive asset rationalization and support higher R&D is the right way but the fast growing raw material costs, a still suffering business in Europe and the loss of synthetic fuel tax benefits are too exhausting to calm down until restructuring savings begin.

ECONOMIC NEWS

New orders for manufactured goods in August increased $9.7 billion or 2.5 percent to $395.2 billion, the U.S. Census Bureau reported today. This followed a 2.5 percent decrease in July. Shipments, up for the fourth consecutive month, increased $6.6 billion or 1.7 percent to $393.5 billion. This was at the highest level since the series was first stated on a NAICS basis in 1992 and followed a 0.1 percent increase in July. Unfilled orders, up for the fourth consecutive month, increased $9.2 billion or 1.6 percent to $590.0 billion. This was at the highest level since the series began and followed a 1.0 percent July increase. Inventories, down following two consecutive monthly increases, decreased $0.6 billion or 0.1 percent to $463.7 billion. This followed a 0.6 percent July increase.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks finished higher on a third consecutive rise of U.S. markets overnight and strong dollar against the yen, giving a boost to exporter-related issues. The Nikkei advanced on strong world semiconductor sales data and reached a new four-year high at 13738.84 points to close at 1.6%. Canon, Kyocera Corp., and Honda Motor were among the leading gainers. In South Korea markets gained 1.8%, while in Hong Kong lost 0.1%. The dollar traded at 114.12 yen.

European markets closed Tuesday session mostly higher on strong auto sector with the German DAX 30 rising 1.1% and the French CAC 40, up 0.6%. Oil-heavy London’s FTSE 100 fell 0.1% after crude-oil prices dropped and BP warned that it wouldn’t be able to meet its output targets.

ENERGY, METALS, CURRENCIES