U.S. MARKET AVERAGES

U.S. stock averages have been volatile throughout the morning session, falling below and rising above the flat level, affected by a large quantity of economic news. Presently, only two of the ten economic sectors post gains. Stocks turned higher after the Energy Department reported an increase in refining capacity and crude oil inventories and sent oil prices down. The upbeat news provided signs of recovery in the energy industry. The inflation worries, which have accompanied the market sentiment for weeks, grew even bigger when the Commerce Department reported a sharp jump in import prices of 2.3%, the biggest one in 15 years.

The news on import prices overshadowed a report on the nation's trade deficit, which rose to $59 billion in August, up from $58 billion the month before but less than economists had expected. Much of that increase can be attributed to higher oil prices.

Disappointing news was released by the Labor Departmentt, reflecting Hurricane Katrina's continuous impact on employment. The report said that first-time jobless claims fell to 389,000 last week from 391,000 the week before.

The Tech sector is posting modest gains of 0.4%, pushing the Nasdaq average just above the flat level. Semiconductor sector has recovered from yesterday’s decline and is currently up 0.9%.

The Energy sector is the biggest decliner, down by 2.8% as oil prices pulled back about 1%, together with gasoline and natural gas. The Utilites also drop.

Among the gaining stocks Apple Computer (AAPL: chart) is a notable advancer, rising by 4.3%, erasing losses from Wednesday. Texas Instruments (TXV: chart) and Microsoft (MSFT: chart) also stand out as bright spots in the sector.

There are very few stocks moving to new 52-week highs. LAM Research (LRCX: chart) has reached a new peak on strong earnings report. Johnson Controls (JCI: chart) is setting a new high on earnings outlook and an upgrade from Deutsche Bank.

Among the large number of stocks reaching new 52-week lows, Comcast (CMCSK: chart) is the most notable loser on news that the company is in talks, along with Google (GOOG: chart), to take a stake in Time Warner's (TWX: chart) AOL.

ECONOMIC NEWS

The Commerce Dept. report showed that the trade deficit widened to $59.0 billion in August from an upwardly revised $58.0 billion in July. Economists had expected the deficit to rise to $59.6 billion compared to the $57.9 billion originally reported for July.

The wider deficit came as an increase in the value of imports outpaced an increase in the value of exports. The report showed that imports rose 1.8 percent to $167.2 billion while exports rose 1.7 percent to $108.2 billion.

Separately, a report from the Labor Dept. showed that import prices rose rather sharply in September, reflecting a significant increase in petroleum prices. Export prices also showed a notable increase.

The report showed that import prices rose 2.3 percent in September after rising 1.2 percent in each of the three previous months. Excluding a 7.3 percent increase in petroleum prices, import prices increased by a more modest 1.2 percent.

At the same time, export prices rose 0.9 percent in September after falling 0.1 percent in August. Excluding a 1.4 percent drop in prices for agricultural exports, export prices rose by 1.1 percent.

A separate report from the Labor Dept. showed that initial jobless claims in the week ended October 8 fell to 389,000 from the previous week's revised figure of 391,000. Economists had expected a more significant decline to about 350,000.

The report also showed that the four-week moving average fell to 395,750 from the previous week's un-revised average of 404,500. The decrease comes on the heels of eight consecutive weekly increases.

As mentioned above, many traders are looking ahead to the key data that is due to be released on Friday, including reports on consumer prices and retail sales.

MOVERS AND SHAKERS

Hamburger chain McDonald's Corp. (MCD: chart), a Dow component, posted strong sales for September and made profit predictions that exceeded analysts expectations, partly because of a rebound in Europe. The company said sales at stores open longer than a year increased 3.9% compared with last year when the company's same-store sales increase was 7.3% due to the launch of new products. McDonald’s jumped 1.1%.