Morning traders.Market wrap: Australian stocks are set to open...

Morning traders.

Market wrap: Australian stocks are set to open more than 1% higher this morning after Wall Street rebounded from a 290-point plunge. However, weaker commodity prices may limit further gains.

The June SPI futures contract closed 65 points higher at 4339 after Wall Street finished mixed against a background of a tumbling euro, heavy losses in European equities and rising tensions in Korea.

The Dow Jones Industrial Average hit a six-month low and was off 292 points in early trade but rallied steadily throughout the night to close just 23 points or 0.23% lower at 10,044. The S&P 500 closed 0.04% higher and the Nasdaq was off 0.12%.

"I think it's a question of pick your poison," the managing partner at a U.S. capital management firm told MarketWatch about the severe early fall. "The market was poised for a very severe correction, and whether it's Mediterranean countries or worries about German banks, you can pick your catalyst. The [S&P 500] was very uncomfortable at 1,220, with some of the assumptions being made based on a sharp V-shaped recovery."

European markets suffered another horror night as banking problems in Spain dragged the euro lower and the Italian, Portuguese and Irish stocks markets joined Spain and Greece in bear-market territory, down at least 20% from their April highs. The main Italian stock index slumped 3.4% overnight, Portugal 2.75% and Ireland 3.8%. Britain's FTSE lost 2.54%, Germany's DAX 2.34% and France's CAC 2.9%.

In signs of increasing concern about the global banking system, the rate that banks charge each other for short-term loans in U.S. dollars hit another 10-month high. The London interbank offered rate, or Libor, was 0.53625%, up from Monday's 0.50969%, the highest level since early July.

The losses on the major U.S. stock indexes eased after a better-than-expected report on consumer confidence. The Conference Board's sentiment gauge rose from 57.7 to 63.3 last month, the third straight rise. However, house prices remained weak, with falls reported in two separate reports.

Gold continued yesterday's recovery as the latest squabble on the Korean peninsula raised geo-political tensions and encouraged "fear buying". The spot price was recently $9.70 higher than Monday's New York close at $1,201.60 an ounce.

Other commodities were pressured by early gains for the U.S. dollar, which ebbed steadily during the night. The dollar index, which tracks the greenback against six major currencies, was recently up 0.3% for the session but well off its highs.

Crude oil futures dipped near $67 but were recently at $69.96 a barrel, off 25 cents or 0.4% for the session.

Yesterday's rally in industrial metals proved a brief respite as the surging U.S. dollar drove foreign buyers away. Copper for July delivery sank 3.4% in U.S. trade. In late trade in London, aluminium was down 3.4%, lead 4.4%, nickel 4.6%, tin 1.6% and zinc 3.6%.

"What people are worried about is contagion seeping out from the government finances and back into bank finances," a U.S. analyst told Reuters. "People are sitting on their hands wondering what on earth is going to happen next. Looking at equity markets, there is quite a lot of downside risk and if that comes to pass that would be reflected in the commodity markets as well."

TRADING THEMES TODAY

SOLD A DUMMY: Local traders will be breathing a sigh of relief after the looming overnight apocalypse on Wall Street ended with a whimper. If nothing else, last night tells us that U.S. investors remain willing to buy dips if the discount is steep enough - much as our market did last Friday. It looks like our market will recover around half of yesterday's losses at today's opening bell. What happens after that will largely depend on Asia's response and U.S. futures. Commodity prices continue to weaken and that bodes ill for our market's medium-term prospects. Confidence remains fragile and caution is advisable.

ECONOMIC NEWS: The Melbourne Institute's Leading Index of economic indicators is due at 10.30 am. Quarterly construction work data are due at 11.30 am. New home sales data is due tonight in the U.S. - housing is fast re-asserting itself as a problem for the U.S. recovery, so tonight's data may have more influence than usual. Also tonight, core durable goods orders and crude oil inventories.

Good luck to all.