Morning traders.Market wrap: Australian stocks face a flat start...

Morning traders.

Market wrap: Australian stocks face a flat start after another volatile night on Wall Street as investors weighed upbeat U.S. economic news against further signs of strain in Europe.

The December SPI futures contract ended the night session 2 points or 0.04% lower at 4591 as U.S. equities once again followed European markets lower before paring losses. Metals rallied and oil sagged.

The Dow fell 120 points at the open and finished 46 points or 0.42% weaker at 11,006 after U.S. consumer confidence hit a five-month high, a business measure beat forecasts and President Obama signalled plans to extend his predecessor's tax cuts. The S&P 500 walked the same road, closing 0.61% lower, and the Nasdaq trailled at -1.07%.

"It's a tough place," the US-based head of asset allocation for ING Investment Management told Bloomberg. "While there's fear of a spill-over from the European debt situation, it's also dangerous to go short U.S. equities here. Once Europe is off the front page, investors will look at U.S. fundamentals again and stocks can rally significantly."

European markets fell for a third night as fear that the sovereign debt crisis is spreading undermined demand for stocks, government bonds and the euro. The cost of insuring the debt of Italy, Spain, Portugal and Ireland hit record levels and the euro slipped to a fresh two-month low. Britain's FTSE dropped a further 0.41%, Germany's DAX 0.14% and France's CAC 0.73% as banks exposed to government debt continued to sell off.

U.S. investors found some solace in further signs of improvement in the economy. The Conference Board's confidence index rose to 54.1, its highest level in five months, and a regional manufacturing gauge beat expectations. Less promising was another slide in house prices, down 0.7% in September across key capital cities.

Commodities marched to different drummers, with oil falling, industrial metals modestly higher and precious metals rallying strongly.

Gold hit a three-week high on safe-haven buying and news that China has approved a a fund to invest in gold overseas. Spot gold was recently $16.60 stronger than Monday's New York close at $1,383.90 an ounce. Silver for March delivery surged 92 cents or 3.4% to $28.08 an ounce.

Industrial metals were boosted by signs of an improving U.S. economy and falling stockpiles of copper and aluminium. In late trade in London, copper was up 1.8%, aluminium 0.3%, lead 1.9%, nickel 1.9%, tin 2.5% and zinc 1.6%.

Oil drooped ahead of tonight's U.S. inventories report and as the U.S. dollar continued to rise, making crude more expensive for holders of other currencies. Crude futures were recently down $1.90 or 2.2% at $83.84 a barrel.

TRADING THEMES TODAY

ON THE EDGE: Last night's action in the U.S. looked like a repeat of Monday night until an ominous slide in the last two hours left the key share indexes hovering just above support levels. We didn't get Monday's clear rejection of lower levels and the next night or two is likely to be crucial in determining the short-to-medium term market direction. I'm less bullish than this time yesterday. All the recent U.S. data say we should be going up, but the headwinds out of Europe (debt crisis), China (government moves to dampen the economy) and here (weakening growth) are proving stubborn. This is not a time to make big bets, imo.

GDP: Economists predict that the local economy slowed last quarter as rate rises and the soaring dollar took a toll. Expectations for today's September-quarter GDP figure are around the 0.4-0.5% growth level, down from 1.2% the previous quarter and equating to healthy annual growth of 3.4%. Any sharp move in shares after 11.30 am EST will flag a surprise result.

CHINESE MANUFACTURING: With China's central bank working to slow the economy, all eyes will be on today's twin manufacturing purchasing managers' indexes, released at 12.00 (official report) and 1.30 pm (HSBC report) EST. Both reports are expected to confirm that the manufacturing sector continues to expand at a robust pace. The conundrum is, if the government is looking to rein in excessive growth, do we want a strong figure because that would suggest increasing demand for Australian resources or a weak figure because that may reduce the risk of more rate rates?

ECONOMIC NEWS: A busy day for potential market-moving news is dominated by local GDP figures at 11.30 am EST and Chinese manufacturing indexes at noon and 1.30 pm (see above). Also due: AIG's local manufacturing index at 9.30 am and the commodity price index at 4.30 pm. Tonight in the U.S. brings the manufacturing index, non-farm employment change, Federal Reserve's Beige Book, year-on-year job cuts, revised labour costs and non-farm productivity, construction spending, crude oil inventories and vehicle sales.

Good luck to all.