Morning Update

Weekly claims rise, durables stumble

Weekly initial jobless claims jumped 32.000 to a seven-year high of 493,000, above the Bloomberg forecast of 450,000. The Labor Department said that about 50,000 claims were related to Hurricanes Gustav and Ike. The four-week moving average increased 16,000 to 462,000, and continuing claims rose 63,000 to 3,542,000.

Durable goods orders fell 4.5% in August, well below the estimate of a 1.9% decline. Ex-transportation, orders fell 3.0%, south of the forecast of a 0.5% drop. Orders for non-defense capital goods ex-aircraft, a measure of business spending, dropped 2.0%.

New home sales will be released at 10:00 a.m. ET and a 1.0% drop to an annual rate of 510,000 units is forecast.

GE weakness cuts Europe advance

Stocks in Europe quickly pared midday gains after the US industrial conglomerate General Electric cut guidance. But hopes that the US rescue plan for the financial markets will soon pass Congress continues to underpin shares. Though equity traders are expressing confidence the package will soon be approved, credit markets continue to tighten as banks hold onto cash and end of quarter demand for funds dries up liquidity. Central banks have had some success bringing down the overnight Libor lending rate with sustained injections of cash, but banks have been unable to have an impact on the three-month Libor rate, which jumped from 3.48% yesterday to 3.77%. The rate is nearly 100 basis points above the level it stood before the latest crisis began, signaling that banks are growing increasingly uneasy and tensions in the short-term credit markets are high.

Tokyo jitters

Worries about the US bailout package and the restrictions Congress may attach to the bill weighed on traders in Tokyo, sending down the Nikkei 225 Index by 0.9%. Recession fears in the US pressured automakers, and banking stocks fell modestly amid the continued uncertainty plaguing the credit markets. But shipping issues registered steep losses as the Baltic Dry Index - a measure of shipping rates - fell to the lowest level in 19 months due to continued sluggishness in worldwide demand. Meanwhile, Japan's economic minister said there is little reason to cut rates since the benchmark rate is at 0.50%. The Bank of Japan could reintroduce quantitative easing if rates fall to zero, but that method did not have much effect in stimulating the economy when it was last implement, he said.