U.S. MARKET AVERAGES

Market remained on the edge and defensive all day. The morning news on inflation and initial claims of unemployment supported early momentum at opening. The rise in oil price in the morning was overshadowed by the good news on the core inflation. The market in the afternoon ran into the weakness in oil, home builders, casinos, retailers and financials sectors. In the late afternoon utilities, techs, and energy stocks led the advances but major averages failed to rise much.

Gold shined during the session and rose $5.60 to $456.30 per ounce. The inflation worries in the short term is not reflected in the economic statistics, but Hurricane Katrina, highway bill, airline bankruptcy, and Iraq war will all contribute to higher federal government deficit. Gold closed nine-month high as several traders predicted that price may reach as high as $500.

AOL and Microsoft (AOL: chart), (MSFT: chart)

Microsoft is in talks with Time Warner to acquire or partner with its troubled subsidiary AOL. Once fierce rivals are driven to explore merger talks indicates how times have changed in the last ten years. With the success of Google search engine, Yahoo’s lead in advertising revenue and AOL’s failure to exploit the content synergy with its parent Time Warner, AOL is now looking for a tech savvy home.

AOL and Microsoft hope that Microsoft’s ability to develop Internet tools and merge AOL client base with that of MSN will give both a bigger customer base. AOL may have been better off, had it remained independent in the first place. The hoped synergy between Time Warner and AOL never really materialized.

AOL and Microsoft are still far from the success of Google, Yahoo, and eBay. If size was the issue none of these three leaders of today would have succeeded. The merger between AOL and Microsoft may turnout to be yet another sad chapter in the AOL saga.


MOVERS AND SHAKERS

UICI (UCI: chart) jumped 15% after it has agreed to be bought by an assembly of private equity firms headed by Blackstone Group.

Bear Stearns (BSC: chart) fell 2.1% due to its earnings report that stated earnings of $378.3 million, or $2.69 a share, which is only little higher than the expectations of $2.38 a share.

Google (GOOG: chart) dropped 0.9% after the search engine priced its secondary offering of 16 million shares through a group of investment bankers.

Motorola (MOT: chart) was 0.8% higher after news report saying that the company took advisers to explore the sale of its automotive unit.

Boeing (BA: chart) could be in play after Prudential Equity Group warned about possible feedbacks from a machinists' strike.


ECONOMIC NEWS

Consumer prices continued higher in the month of August, according to a report from the Department of Labor, although the increase came in line with economist estimates. Nonetheless, the report did not include much of the impact of Hurricane Katrina.

The Labor Dept. said that the consumer price index rose 0.5 percent in August, matching the increase seen in the previous month. Most economists had been expecting prices to increase by 0.5 percent.

The increase in consumer prices was largely due to a sharp rise in energy prices, which rose 5.0 percent in August following a 3.8 percent increase in July. The increase reflected a 7.9 percent increase in prices for energy commodities and a 1.3 percent increase in prices for energy services.

The report also showed that the core CPI, which excludes food and energy prices, rose by 0.1 percent for the fourth consecutive month. The increase came in slightly below economist expectations of an increase of 0.2 percent.