U.S. MARKET AVERAGES

A stop in growth in the current account deficit in the third quarter failed to impress the traders in the bond and equity market during the session. Market focused on the deal flow and earnings of the day.

Time Warner Inc. is reported to be in negotiations with Google for its AOL unit to serve ads on AOL. Wall Street Journal reports that Google is likely to take 5% stake in AOL for $1 billion. If this deal is struck then it will make harder for Microsoft to gain ground in the online search marketplace. Currently Yahoo is ad serving partner on MSN search owned by Microsoft.

Trading during the session on a day when options expired was higher than average but failed to top the peak in previous quarters. Oracle reported earning on higher revenue, KB Home reported earnings jump 66% on revenue growth of more than 45%. The news helped several other stocks in the sector to gain during the session but the sector failed to register gain at close of the day.

Darden restaurants reported 28% rise in earnings driving the stock to all-time high of $38.81. The company also predicted earnings growth of 15% to 20% for the year.

MOVERS AND SHAKERS

SMSC Corp (SMSC: chart) posted Q3 earnings of $5.4 million, or 24 cents a share, up from $600,000, or 3 cents a share, the year earlier. Excluding special charges, the company would have earned 38 cents a share against 4 cents a year ago. Revenue climbed to $86.6 million from $50.8 million. The average estimates of analysts were 33 cents a share on revenue of $83 million. The stock gained 15%.

Oracle Corp (ORCL: chart), database software company, posted quarterly earnings decline of 2% as the company reported an increase in sales but felt the effects of adverse currency-exchange rages and higher expenses following a number of acquisitions. The stock dropped 4%.

Scholastic Corp (SCHL: chart) forecast fiscal 2005 earnings at the bottom end of its $2.30 to $2.50 a share range after reporting an 8% decline in Q2 profit. Scholastic''s net income in the Q2 fell to $66.9 million, or $1.59 a share, with revenue up 2% at $696 million mainly due to a decline on its international operations. It sees full-year revenue between $2.3 billion and $2.4 billion. Analysts were expecting earnings of $1.80 a share for the Nov. 30-ending quarter and $2.43 for the fiscal year. Company’s shares fell 2.1%.

Quiksilver Inc (ZQK: chart), sports apparel and accessories company, reported Q4 profit rise of $33.6 million, or 27 cents a share, from $24.9 million, or 20 cents, a year ago, matching analyst estimates. Revenue for the quarter advanced to $637.4 million from $350.3 million. The stock rose 3%.

ECONOMIC NEWS

Friday morning, the Department of Commerce released its report on the current account deficit in the third quarter, showing that the deficit unexpectedly narrowed from the second quarter.

The report showed that the current account deficit narrowed to $195.8 billion in the third quarter from an upwardly revised $197.8 billion in the second quarter. Economists had expected the deficit to widen to about $206 billion.

The Commerce Dept. said that the narrower deficit reflected a decrease in net outflows for unilateral current transfers, a shift to a surplus on income from a deficit, and an increase in the surplus on services.

With the decrease, the current account deficit ran at 6.2 percent of gross domestic product in the third quarter compared with 6.4 percent in the second quarter.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks ended mixed with the Nikkei falling for a third straight day. The 0.5% decline of the Japanese bellwether reflected a decline in U.S. markets, weaker dollar against the yen and profit-taking. Across the region, South Korea’s Kospi dropped 1.2%, Hong Kong’s Hang Seng fell 0.2%, while Taipei’s index climbed by 1.5%, followed by Australia’s All Ordinaries, up 0.3%.

European stocks finished the session higher, boosted by utility stocks and the expiration of key futures and options contracts. Averages were also supported by positive German economic data which sent the euro higher by 0.2% to $1.1988. The German DAX 30 rose 0.9%, the French CAC 40 gained 0.6%, and London’s FTSE 100 climbed 0.7%.

OIL, METALS, CURRENCIES

Crude oil prices declined below $60 a barrel on warm weather forecasts after Christmas. Light sweet crude for January delivery fell $1.96 to $58.06 a barrel on the Nymex. Heating oil fell 5 cent to $1.732, followed by gasoline, also down 5 cent to $1.5689. Natural gas dropped 15 cents to $13.633 per 1,000 cubic feet. London Brent declined 52 cents to $58.88.