Paulson said the $700 billion Troubled Asset Relief Program (TARP) "is not a panacea for all our economic difficulties," while testifying before the House Financial Services Committee, and added that the rescue package was not intended to be an economic stimulus or an economic recovery package. He also said the key to resolving the housing problem in the United States is more bank lending, noting that the stabilization of Fannie Mae and Freddie Mac is critical.

Meanwhile, Bernanke said the financial crisis was not a failure of capitalism, in his testimony before the committee. Bernanke added that credit conditions are "still far from normal," but to combat the crisis, the Fed is taking steps to improve banks' access to capital and increase their capacity to lend.

In data releases, the U.S. Department of Labor's seasonally adjusted headline measure of producer price inflation fell more than expected with a 2.8% month-over-month decrease in October, pushing the annual advance to 5.2%. The core measure of producer price inflation rose 0.4% in the month, resulting in a 4.4% rise year-over-year. Economists were expecting core inflation to increase just 0.1% in the month, while the all-items index was predicted to decline 1.9%. From a year ago, the core measure of producer price inflation is up 5.2%.

Ian Shepherdson, chief U.S. economist at HFE, said the decrease in the headline figure was a result of plunging energy prices, while the core figure was boosted by a 2.6% jump in light truck prices, as well as other capital goods, including aircraft. "We view these as legacy increases following the surge in commodity prices, which is now reversing," he noted. "Core crude prices fell a huge 17.0% m/m, and are now down 3.1% y/y. Core finished goods PPI will collapse next year."

Net long-term TIC flows came in well above the consensus forecast, totalling $66.2 billion in September, while total TIC flows for the month rose to $143.4 billion, according to data released by the U.S. Treasury on Tuesday. The big news of the report, however, was confirmation that China has surpassed Japan as the biggest holder of U.S. Treasuries.

Economists had been expecting net long-term flows to rise to $27.2 billion compared to the previous month's upwardly revised $21.0 billion figure. Total net TIC flows in August were revised up to $21.4 billion from a previously reported -$0.4 billion.

Home prices continued to fall in a majority of U.S. metropolitan areas in the third quarter, while existing home sales were also down in 32 states, the National Association of Realtors reported Tuesday. Distressed sales, including foreclosures and short sales, accounted for roughly 35% to 40% of sales in Q3, pulling down the national average price for a single-family home to $200,500, a 9% decrease from a year prior when the average price was $220,300, NAR reported.

There were no major economic data releases scheduled in Canada.

In overnight news, UK inflation surprised to the downside in October, slowing to 4.5% in annualized terms, the Office for National Statistics (ONS) reported. Economists had expected a rate of 4.8% for October, down from the record high 5.2% registered in the 12 months to September.

By Stephen Huebl, This email address is being protected from spam bots, you need Javascript enabled to view it , with contributions from Todd Wailoo, This email address is being protected from spam bots, you need Javascript enabled to view it , Erik Kevin Franco, This email address is being protected from spam bots, you need Javascript enabled to view it and Patrick McGee, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Sarah Sussman, This email address is being protected from spam bots, you need Javascript enabled to view it

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