U.S. MARKET AVERAGES

U.S. markets opened down and the three major averages have recently ticked further downward as the government reported U.S. import prices showed the largest gain in nearly 15 years on surging energy costs. The data release fanned inflation fears and more interest rate increases.

McDonald’s Corp. released a strong third-quarter earnings outlook of 58 cents a share. Google and Comcast Corp. are in discussions to buy shares in Time Warner Inc’s America Online for $5 billion.

Energy stocks are falling. The segment is now at its lowest level since August. The natural gas sector is leading the group lower, falling by more than 3%. The oil space is also weak, dropping by 2.2%. Utility and gold stocks are also showing losses.

There are few major sectors showing gains on the day. The computer hardware space posted modest gains at the start of trading, helped by a 1.6% advance in Gateway (GTW: chart). The biotech space is also sitting above the unchanged mark.

ECONOMIC NEWS

The Department of Energy's Energy Information Administration revealed that crude oil inventories climbed by 1 million barrels for the week ended October 7, climbing to 306.4 million barrels from the 305.4 million barrels recorded in the previous week. This followed a decline of 300,000 barrels for the prior week and marked the first advance in crude inventories since mid-August. Oil inventories were 11.2% higher than their levels of the same time last year.

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.

MOVERS AND SHAKERS

Inflation fears have largely driven the recent declines, and economic issues are likely to play a large role in Thursday's trading as well. As usual, weekly employment data are due out before the opening bell, with economists expecting a dip in initial jobless claims to 350,000. A report on the trade deficit is also expected, with the measure projected to widen to $59.6 billion for August. Information on import and export prices is due to come out as well.

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%.

DuPont (DD: chart), also a Dow component, announced its plans to repatriate $9.4 billion in overseas earnings by the end of 2005 and said it will spend $115 million to replace equipment damaged by Hurricane Katrina. The company said it expects earnings for the third quarter to be equal with estimates. DuPont added 0.9%.

Internet stocks are expected to be active due to a report in The Wall Street Journal that a number of companies, including search engine Google (GOOG: chart) and cable-television operator Comcast Corp (CMCSK: chart), want to buy a stake in American Online, a unit of Time Warner Inc. (TWX: chart). According to reports both companies are in discussions with Time Warner about buying a minority stake in America Online for as much as $5 billion.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks lost ground, reflecting U.S. markets losses Wednesday when all major averages hit five-month lows. The Nikkei lost 0.1% on trade surplus data. Across the region, South Korea’s Kospi dropped 1.9% on tech stocks, hurt by concerns over the sector’s earnings outlook. Samsung Electronics was the most notable decliner. Shares in Hong Kong added 0.3%, while stocks in Australia shed 0.8%.

European markets traded lower at mid-day on interest rate and inflation concerns overseas. However, regional markets were supported by corporate news and automakers Volkswagen and Peugeot Citroen. The German DAX 30 lost 0.4%, the French CAC 40 slipped 0.8%, and London’s FTSE 100 shed 0.9%.