Morning traders.Market wrap: The share market is likely to open...

Morning traders.

Market wrap: The share market is likely to open modestly higher after a late recovery on Wall Street and commodity markets trimmed solid early falls.

The local December SPI futures contract this morning was 13 points or 0.3% stronger at 4656 as futures traders decided our market pre-empted overseas weakness during yesterday's 0.8% fall.

U.S. stocks slumped in early trade after a report that the Federal Reserve's "QE2" or monetary easing program will be more modest and gradual than analysts anticipated. The Dow tumbled 140 points by lunchtime but partly recovered to close 43 points or 0.39% lower. The S&P 500 lost 0.27% and the Nasdaq gained 0.24%, rising for a sixth day as tech stocks surged off their lows.

The slide was sparked by a Wall Street Journal report that the Federal Reserve's bond-buying program to stimulate the economy will be limited to a few hundred billion dollars and subject to adjustment over time. Analysts had been predicting numbers nearer to the $2 trillion worth of bonds that the Fed bought during the financial crisis.

"It's common sense that the Fed wouldn't be taking any aggressive step right now because that could cause serious damage for the economy in the long-run," the chairman of Holland & Co in the U.S. told Bloomberg. "However, the short-term reaction is straightforward - the [U.S.] dollar rises, sending commodity and stock prices lower."

The report overshadowed healthier signs in the U.S. economy. Durable-goods orders had their biggest increase since January, up 3.3% last month. New-home sales continued to rise from record low levels, increasing 6.6%. Both numbers were well ahead of expectations.

The U.S. dollar responded by pushing to its highest level this week. The dollar index, which tracks the U.S. unit against other currencies, was recently up 0.5% at 78.10.

Oil was crimped by a sharp rise in U.S. inventories but pulled away from its lows as U.S. equities reversed. Crude futures were recently down 59 cents or 0.7% at $81.96 a barrel after earlier sinking as low as $80.52.

Metals fell victim to the rising dollar, with gold falling to a three-week low. The spot price was recently $14.40 lower than Tuesday's New York close at $1,325.90 an ounce. December silver eased 43 cents or 1.8% to $23.40 an ounce.

Industrial metals also fell heavily. In late trade in London, copper was down 2.7%, aluminium 2.9%, lead 2.6%, nickel 2.1%, tin 2.8% and zinc 4.1%. The falls helped drag the three big Australian miners listed on U.S. indexes - BHP, RIO and AWC - down more than 1.8% each.

The major European markets closed weaker as mining stocks declined. Britain's FTSE fell 1.07%, Germany's DAX 0.69% and France's CAC 0.96%.

TRADING THEMES TODAY

BUYING THE DIPS: Another slide overnight and yet another bounce as U.S. traders continue to buy any weakness in stocks. Sentiment remains broadly bullish but perhaps less certain than a week or two ago. Our market picked the overnight direction correctly yesterday, but I'll be surprised if we recover much ground today, given the overnight falls in commodity prices and the big miners listed overseas. We're still stuck in a trading range, and the longer we stay here, the more likely it seems that the breakout will be down, rather than up.

U.S DOLLAR TURNING?: Overnight currency moves suggest the U.S. dollar may be building a short-term bottom, which would have negative implications for dollar-denominated commodity prices and consequently our mining sector. The dollar index set a higher low and is this morning within a few points of setting a higher high. If that happens - if - then we may see a significant pullback in commodity prices. Of course, much will depend on what the U.S. Federal Reserve announces next month, but expectations are easing.

ECONOMIC NEWS: The monthly leading index of economic indicators is due at 10 am. The Reserve Bank's Annual Report is due at 5.30 pm. Japan is due to make an interest rate announcement today, time uncertain. Tonight's key reports in the U.S. are unemployment claims and natural gas storage.

Good luck to all.