HSBC economist Ryan Wang says the Fed's beige book was "generally weak" and showed "a slightly better (regional) mix than the previous Beige Book (9 slower activity, 3 steady)." He says "comments from retailers (were) not particularly impressive... but we still think strong sales at discounters will boost retail sales for May."

Stocks are are off their worst levels, but continue to post substantial losses.
The Fed's Beige book -- which contains anecdotal economic information from the various Fed districts -- was just released. The book said consumer spending slowed in March. Five regions reported stable economies, while seven reported softer or sluggish growth. There has been "tighter credit standards" for most loan types. The book reports moderate or limited wage growth.
Separately, the May budget deficit widened to $165.9 billion from $67.7 billion. Economists forecast a deficit of $165 billion.
Fed funds futures suggest a 14% chance the Fed will raise rates by 25 basis points on June 25, and an 86% chance that the Fed will leave the rates unchanged at 2.00%.
Crude oil is up 4.7% to $137.48 per barrel, and traded as high as $138.30. Crude is up 43% this year, and is up 108% compared to one year ago.

"Economic activity remained generally weak in late April & May." Three districts described activity as weaker, 4 reported slower or sluggish growth, and the remaining 5 (Philly, Cleveland, Atlanta, St Louis, SF) said activity was stable or little changed. Consumer slowed, input costs rose, high energy prices damped tourism; mfg was soft, real estate weak, consumer lending softer; retail price reports were mixed. Report was prepared at Richmond Fed based on info gathered before June 2. The April beige book said "economic conditions have weakened since the last report," so the most recent reading is a bit improved.

Stark earlier said in a Bloomberg interview that the ECB has in mind "one and done."

Stocks opened slightly lower and then plummeted as crude oil prices spiked, financials faltered and the S&P 500 broke the 1350 level -- which is considered a key area support by technical analysts.
There were more hawkish inflation comments from the Fed today. Fed Vice Chairman Kohn said anchoring inflation expectations "is critical" and that the gain in oil prices is raising consumer inflation expectations.
Crude oil (+3.7% to $136.12) rallied to a 4.2% gain ahead of the weekly energy inventory report. Crude then traded in a choppy manner after the government announced a larger than expected decrease in inventory levels.
The spike in prices has weighed on areas sensitive to oil prices, such as the transports (-3.2%) and the consumer discretionary sector (-1.6%). Conversely, the energy sector is up 0.8%.
Weakness is broad-based, with nine of the ten economic sectors posting a loss. Financials are posting the largest decline as 96% of stocks within the sector fall. Of note, Lehman Brothers (LEH 25.79, -1.71) is plummeting for the second day in a row.
Other areas of weakness include telecom (-1.7%), tech (-1.7%) and industrials (-1.5%).

The stock market climbs off of session lows, although losses are still substantial. Crude oil is posting a steep 2.3% gain, but has dipped off its session high of 4.2%.
All ten economic sectors are in negative territory. Telecom (-1.7%) has surpassed financials (-1.2%) as the worst performing sector. Telecom is down the most this week with a 3.9% decline, largely due to disappointment over AT&T's (-0.43) announcement that its profit margins will be under pressure due to its new deal to carry the Apple iPhone

High oil prices affect outlook-raise unemploy & infl. But there is no automatic rate formula for Fed to adjust to an oil shock. Says infl expectations usually dont jump. A jump in any one commodity (oil) should not affect gen'l inflation. He believes in the Phillips Curve, which implies policymakers must "balance the deleterious econ effects of (oil price) shock in the short run on both unemployment and inflation." Says if oil is on a more significant upward trend than appreciated, there may be "an adjustment period with distortions to relative prices."

A number of banking stocks are trading below rights issue levels and talk of huge exotic writedowns, add traders. CAC-40 is down 95pts (-2.00%), Xetra-DAX is down 112pts (-1.63%) and FTSE-100 is down 105pts (-1.81%).

WTI Nymex crude oil trades at $134.44, up $3.13 ahead of the DoE weekly inventory data at 14:35GMT, where analysts expect crude oil supplies to show a draw of 1.5mln barrels in the week ended June 6. Gasoline supplies are seen up 1.5mln barrels.

Stops triggered as rate breaks through resistance at $1.9620/25, takes rate on to $1.9647, but reported offers placed between $1.9650/60 expected to provide decent resistance. However, should rate break higher seen opening a move on toward $1.9680/85 ahead of $1.9700/10.

EUR/USD $1.5500
USD/JPY Y106.00, Y105.85
AUD/USD $0.9500, $0.9650

``It's possible for the beige book to confirm that there's still weakness in housing and employment in some parts of the U.S.,'' said Takuma Kurosawa, global markets treasurer in Tokyo at HSBC Bank, a unit of Europe's biggest lender. ``Given the dramatic shift in U.S. currency policy in favor of a strong dollar, the beige book may not do much to unsettle the dollar.''The U.S. currency may rise to 107.70 yen and $1.5430 per euro today, he said.

Stocks looked set to open slightly higher Wednesday, ahead of the release of a government report on fuel inventories and Federal Reserve report on economic conditions.On the economic front, the Fed is scheduled to issue its Beige Book - a survey of regional economic performance - at 18:00GMT Fed Vice Chairman Donald Kohn and Fed Governor Randall Kroszner are also due to speak.
Staples won a battle to buy Dutch office supplies company Corporate Express. Corporate Express agreed to a sweetened takeover deal valued at $4.8 billion.
Telecom equipment maker Nortel Networks (NT) backed its 2008 outlook, saying it expects revenue growth in the low single digits and a gross margin of 43%.

Dow and Nasdaq futures have flattened noticeably in recent trade, Dow futures up just 4 points vs 45 earlier. Nasdaq futures are up 3 but had been up 8.

EUR/USD $1.5500
USD/JPY Y106.00, Y105.85
AUD/USD $0.9500, $0.9650

Eases back from its extended rally highs of $1.9618, finding support around the broken resistance level of $1.9585/80. A break below here to allow for a deeper move toward $1.9550. Offers $1.9620/25 ahead of $1.9650/60.

the next data was issued
06:45 France CPI (May) unadjusted 0,5% 0.3%
06:45 France CPI (May) unadjusted Y/Y 3,3% 3.0%
06:45 France HICP (May) Y/Y 3,7% 3.4%
08:30 UK Claimant count (May) +9,0К +7.2K
08:30 UK Average earnings (3 months to April) Y/Y 3,8% 3.8%
08:30 UK ILO Jobless rate (3 months to April) 5,3% 5.2%
08:30 UK Claimant count rate (May) 2,5% 2.5% 2.5%
08:30 UK Trade in goods (April), bln -7,6 -7.4
08:30 UK Non-EU trade (April), bln -4,3 -3.8

The dollar struck a 3-1/2-month high against the yen on Wednesday after more tough talk from Federal Reserve officials on inflation firmed expectations of a U.S. interest rate rise this year. The euro momentarily hit a session low against the dollar after European Central Bank board member Jeurgen Stark was reported as saying the central bank is not considering a series of rate rises, even as investors expect a hike in July
The pound fell against the euro, snapping a two-day gain, on mounting speculation a housing-market slump caused by the credit squeeze is curbing economic growth.

EUR/USD: Opened in early Europe around $1.5481. The recovery continued into early Europe, weak shorts exposed as euro-dollar took out stops through $1.5500. Momentum was subdued however, rate grinding up to $1.5517 before turning around, comments from ECB's Stark then knocking the pair from $1.5486 to $1.5456 (ECB not talking about a series of rate hikes). A decent bounce from here took the pair back up to $1.5500, where traders noted talk of large expiry interest at the NY cut. Strong bids $1.5445/40, bids $1.5410/00, offers $1.5520, stops above
GBP/USD: Opened early Europe at $1.9542. Cable tracked euro-dollar's extended rally above $1.5500, pushing up to challenge resistance at $1.9575/85. Rate then eased with euro-dollar, holding $1.9555 into UK data. Trade and earnings data weighed on sterling, dropping cable to $1.9493. Cable bids $1.9490/80, $1.9450. Offers $1.9575/85, $1.9600/10.
USD/JPY: Opened in early Europe around Y107.71. European dealing opened with dollar-yen pressuring the highs, traders noting talk of barrier interest at Y107.85 and Y108.00 attracting protective offers, with rate easing back under Y107.50. Dollar-yen was trading around Y107.30 going into the US session, while euro-yen was able to extend the highs to Y166.97 before easing to Y166.20. Dlr-yen offers Y107.75/00 (barriers Y107.85/108.00), tech Y108.35

US will report Fed Beige book today at 18:00GMT with Officials comments on a table.

``The monetary policy outlook for the euro makes it look particularly strong against the yen,'' said Shinichi Hayashi, a foreign-exchange trader in Tokyo at Shinkin Central Bank, Japan's fifth-largest publicly traded lender by assets. ``It's realistic to expect an ECB rate hike next month.'' The euro may rise to 167.70 yen this week, he said.

EUR/USD $1.5500
USD/JPY Y106.00, Y105.85
AUD/USD $0.9500, $0.9650

- Hike would be to anchor inflation expectations
- Markets well understood signal of possible hike next month
- Stresses ECB hike is possible, not certain.
- See no clear link between market expectation, Trichet words
- Confident inflation to slow gradually in 2H/start 2009

The euro snapped a two-day decline against the dollar on growing speculation the European Central Bank will raise interest rates next month while the Federal Reserve leaves borrowing costs unchanged.

The 15-nation currency also traded near a seven-month high against the yen after ECB Executive Board Member Juergen Stark said the markets understood the bank's signal to raise borrowing costs next month. The yen fell as rising stocks fueled demand for purchases of higher-yielding currencies funded in Japan.

Resistance 3: Y109.00

Resistance 2: Y108.60
Resistance 1: Y107.70
Current price: Y107.30
Support 1: Y107.30

Support 2: Y106.80

Support 3: Y105.60

Comments: Dollar retreats after the rate probed Y107.60 with stronger resistance comes at Y108.60 (Feb highs). Break above will point to further rise up to Y109.00. Support is around session lows on Y107.20/30. Below correction may widen to Y106.80 and Y105.60.

WTI Nymex crude oil extends gains to $134.50 and up $4.20 on session following comments from US President Bush - diplomacy first choice on Iran but all options on the table.

Resistance 3: Chf1.0620
Resistance 2: Chf1.0580
Resistance 1: Chf1.0440Current price: Chf1.0389

Support 1: Chf1.0370Support 2: Chf1.0280

Support 3: Chf0.0150

Comments: Dollar trades lower session highs, where resistance lies on Chf1.0440. Break above will open the way to Friday’s highs on Chf1.0580. Next band of resistance is near Chf1.0620 (May 08 high). Support is around Chf1.0370 (23.6% of Chf1.0150 - Chf1.0450 rise). Under that level the losses may extend to Chf1.0280/90 (50%) and then – to Monday’s low on Chf0.0150.

Resistance 3: $1.9800

Resistance 2: $1.9660
Resistance 1: $1.9580
Current price: $1.9549
Support 1: $1.9490
Support 2: $1.9460Support 3: $1.9380Comments: Cable rebounds after low was printed on $1.9490, where strong support lies. Below losses may widen to $1.9460 (Jun 05 low) and $1.9380. Resistance comes near 23.6% Fibo level ($1.9800 - $1.9520 decline) at $1.9580. Stronger level comes at 50% Fibo on $1.9660, then – at $1.9800 (Monday’s high).

Resistance 3:$1.5640
Resistance 2: $1.5580
Resistance 1: $1.5530
Current price: $1.5503

Support 1: $1.5430
Support 2: $1.5360
Support 3: $1.5280

Comments: Euro trades in a former range. Support comes at yesterday's low on $1.5430 with further level comes at $1.5360 (Jun 05 low) and $1.5280. Above $1.5530 (23.6% of $1.5840 - $1.5430 decline) the resistance is around $1.5580. Stronger level comes near 50% Fibo level on $1.5640.

EUR/USD recovers from around hourly lows on $1.5454 and currently holds near $1.5490. Bidsaround$1.5440, $1.5410/00, $1.5380 and $1.5350, while offers on $1.5535/40.

GBP/USD continues to decline, testing new session lows around $1.9490 after triggering bids on $1.9500. Stronger bids between $1.9490/80. Below here and rate can ease toward $1.9450 ahead of $1.9420/10. Main offers remain in place

back at $1.9575/85.

EUR
Bids: $1.5440, $1.5410/00, $1.5380, $1.5350
Offers: $1.5490/00, $1.5535/40

JPY
Bids: Y107.20/10
Offers: Y108.00, 108.35/40, Y108.60

GBP
Bids: $1.9525/10, $1.9490/80
Offers: $1.9555/65, 1.9580

AUSSIE
Bids: $0.9410/00
Offers: $0.9530/40

The dollar rose to a three-month high against the yen on speculation Federal Reserve officials speaking today will highlight the risks of inflation.
Fed Board Vice Chairman Donald Kohn and Fed Bank of St. Louis President Jim Bullard are scheduled to deliver speeches. Treasury Secretary Henry Paulson this week said he would ``never'' rule out currency intervention.
The yen remained lower even after a government report showed Japan's economy expanded 4% last quarter, faster than the government initially reported, and surpassing the 3.8% forecast by economists in a survey.
Bank of America Corp. lowered its forecast for the yen as the Bank of Japan is likely to maintain a neutral stance while U.S. and European policy makers signal they may raise rates.

EUR/USD was under pressure before rebounding to $1.5500.
GBP/USD slowly rose from $1.9530 to $1.9570.
USD/JPY tested highs on Y107.70 and retreated to Y107.40.

In Europe focus will be on UK labor market data at 08:30 GMT. There are no key US economic reports today.

Japan's benchmark stock indices ended the day higher, as a weaker yen triggered a solid afternoon rally. The benchmark Nikkei 225 was 162.31 points, or 1.16%, higher at 14183.48. The broader-based TOPIX gained 6.83 points to stand at 1390.03.

Stock market fixing:
Nikkei-160.21-1.13%14,021.17
Topix-14.34-1,0%1 383,20
FTSE-50.30-0.86%5,827.30
DAX-44.53-0.65%6,771.10
CAC-38.30-0.80%4,761.08
DOW +10.74 +0.09% 12,291.06
NASDAQ -10.02 -0.41% 2,449.44
S&P 500 -3.21 -0.24% 1,358.55
10yr Note+1.0700+0.268%4.099%
NYMEX Crude Oil-3.04-2.26%131.31
Gold-26.90-3.00%871.70

Japan stocks fell Tuesdays, led by developing companies on concerns rising rates and inflation pressure cut corporate profits.
Kenedix Inc lost 9,9%, down to the lowest since Mar 14.
Sanyo Electric Co. declined 4.3% after Fed’s Bernanke’s comments spurred US stocks futures sell-off and supportedUS currency.
Godo Steel Ltd. retreated 8.1% after analysts from Morgan Stanley downgraded company’s stocks to «underweight».
Exporters were also down. Canon slid 2%, while Nintendo fell 1.8%. Automakers’ losses were muted, with Honda down 0.8% and Nissan losing 0.5%.
NGK Insulators Ltd., meanwhile, added 1,2%.

EU major indexes fell Tuesday for the fifth day in a row, the longest steak of decline for the last two months.
World Bank said world economy growth may fall to 2,7%versus 3,3% in January amid rising prices for oil and food.
BHP Billiton Ltd. retreated 2.8 % on expectations demand for metal will slow.
TescoPlcfell2.5 % tothelowestforthelasttwomonths.
Fortis lost 3.8% after Merrill Lynch & Co downgraded stocks to «neutral» from «buy».
Taylor Wimpey Plc collapsed 16%. Barratt Developments Plclost 24%.
But BNP Paribas SA rose 1,3%, while UBS AG added 2,9%.

Wall Street closed mix as rising oil prices and comments from Fed chief Ben Bernanke raised worries about inflation and higher interest rates.
Bernanke indicated that the Fed may soon need to raise interest rates, to combat rising commodity prices and other inflationary pressures and to help the weakened dollar. Bernanke also said that despite a big jump in unemployment in May, the danger that the economy has fallen into a "substantial downturn" seems to have eased.
The gap between imports and exports grew more than expected in April, the government reported, due largely to high oil prices. The trade gap swelled to $60.9 billion in April, a 13-month high, from a revised $56.5 billion in March. Economists expected $60 billion, on average, according to a survey.
Company news: A variety of financial stocks bounced back Tuesday, finding some momentum after Monday's big slide. Gainers included Dow components AIG, American Express, Bank of America, Citigroup and JP Morgan Chase.
Lehman Brothers was an exception, falling for a second session as analysts said that the firm is likely to see years of smaller profits as a result of its plan announced Monday to raise an additional $6 billion in capital. The brokerage forecast Monday that it would post a quarterly loss of nearly $2.8 billion.

The dollar rose to a three-month high against the yen and climbed versus the euro after Federal Reserve Chairman Ben S. Bernanke said economic risks have faded, spurring traders to boost wagers interest rates will rise.
Bernanke said late yesterday that the central bank will ``strongly resist'' any waning of public confidence in stable prices.
Futures on the Chicago Board of Trade show a 55% chance the Fed will raise its 2% target rate for overnight lending between banks by at least a quarter point at its Aug. 5 meeting, compared with 9% the previous day. The contracts show a 95% chance the Fed will increase the rate by December, up from 67% odds a week ago.

EUR/USD triggered stops on the break down the $1.5550 level to lows around $1.5440.
GBP/USD remained under pressure, despite strong statistic data, printing lows near $1.9512. Later pound rebounded to $1.9545.
USD/JPY rose from Y106.40 to Y107.40 after exposing stops around Y107.15.

In Europe focus will be on UK labor market data at 08:30 GMT. There are no key US economic reports today.

Resistance 3: Y109.00
Resistance 2: Y108.60
Resistance 1: Y107.70
Current price: Y107.48
Support 1: Y107.30
Support 2: Y106.80
Support 3: Y105.60
Comments: Dollar continues to rally. Rate probes Y107.60 with stronger resistance comes at Y108.60 (Feb highs). Break above will point to further rise up to Y109.00. Support is around session lows on Y107.30. Below correction may widen to Y106.80 and Y105.60.

Resistance 3: Chf1.0620
Resistance 2: Chf1.0580
Resistance 1: Chf1.0450
Current price: Chf1.0412
Support 1: Chf1.0370
Support 2: Chf1.0280
Support 3: Chf0.0150
Comments: Dollar set stable a bit lower session highs, where resistance lies on Chf1.0450. Break above will open the way to Friday’s highs on Chf1.0580. Next band of resistance is near Chf1.0620 (May 08 high). Support is around Chf1.0370 (23.6% of Chf1.0150 - Chf1.0450 rise). Under that level the losses may extend to Chf1.0280/90 (50%) and then – to Monday’s low on Chf0.0150.

Resistance 3: $1.9800
Resistance 2: $1.9660
Resistance 1: $1.9580
Current price: $1.9548
Support 1: $1.9520
Support 2: $1.9460
Support 3: $1.9380
Comments: Cable set stable a bit above yesterday’s lows around $1.9520, where strong support lies. Below losses may widen to $1.9460 (Jun 05 low) and $1.9380. Resistance comes near 23.6% Fibo level ($1.9800 - $1.9520 decline) at $1.9580. Stronger level comes at 50% Fibo on $1.9660, then – at $1.9800 (Monday’s high).

Resistance 3:$1.5640
Resistance 2: $1.5580
Resistance 1: $1.5530
Current price: $1.5488
Support 1: $1.5430
Support 2: $1.5360
Support 3: $1.5280
Comments: Euro trades under pressure, holding within the 100-points range. Support comes at session low on $1.5430 with further level comes at $1.5360 (Jun 05 low) and $1.5280. Above $1.5530 (23.6% of $1.5840 - $1.5430 decline) the resistance is around $1.5580. Stronger level comes near 50% Fibo level on $1.5640.

High Low Close
EUR/USD 1.5651 1.5439 1.5455
USD/JPY 107.43 106.22 107.34
GBP/USD 1.9753 1.9519 1.9534
USD/CHF 1.0437 1.0268 1.0422

EUR/JPY 166.60 165.49 165.90
EUR/GBP 0.7944 0.7889 0.7909
GBP/JPY 210.72 208.62 209.69
GBP/CHF 2.0291 2.0212 2.0360

Change % Change Last
Nikkei -160.21 -1.13% 14,021.17
Topix -14.34 -1,0% 1 383,20
FTSE -50.30 -0.86% 5,827.30
DAX -44.53 -0.65% 6,771.10
CAC -38.30 -0.80% 4,761.08
DOW +10.74 +0.09% 12,291.06
NASDAQ -10.02 -0.41% 2,449.44
S&P 500 -3.21 -0.24% 1,358.55
10yr Note +1.0700 +0.268% 4.099%
NYMEX Crude Oil -3.04 -2.26% 131.31
Gold -26.90 -3.00% 871.70

06:45 France CPI (May) unadjusted - 0.3%
06:45 France CPI (May) unadjusted Y/Y - 3.0%
06:45 France HICP (May) Y/Y - 3.4%
08:30 UK Claimant count (May) +7.5K +7.2K
08:30 UK Claimant count rate (May) 2.5% 2.5%
08:30 UK Average earnings (3 months to April) Y/Y 3.8% 3.8%
08:30 UK ILO Jobless rate (3 months to April) - 5.2%
08:30 UK Trade in goods (April), bln -7.4 -7.4
08:30 UK Non-EU trade (April), bln -3.9 -3.8
18:00 USA Fed Beige book
18:00 USA Federal budget (May), bln - 159.3