Bonds sold off and equities were up on a renewed sense of optimism that the U.S. Treasury's proposed $700 financial rescue package would indeed pass in some form. Meanwhile, Federal Deposit Insurance Corp. announced that it will ask Congress for temporary authority to raise the limit on the amount of money it insures for individual bank accounts. The limit is currently at $100,000.

The Dow Jones Industrial Average closed up 485 points (4.68%), the S&P 500 closed up 58 points (5.27%), the Nasdaq finished the day up 98 points (4.97%) and the TSX closed up 467 points (4.15%). On Monday, after the U.S. House of Representatives voted against the Treasury's rescue plan, the Dow Jones tumbled more than 770 points, or 6.96%, and the TSX lost more than 840 points, or 6.93%.

In economic data releases this morning, the Conference Board reported that its consumer confidence index improved to 59.8 in September, higher than the consensus expectation that confidence would drop to 55.0. The advance was led solely by the expectations component. One-year inflation expectations fell back to 6.2%, its lowest level since March and down from August's 6.6% reading. The previous month's headline reading of 56.9 was revised up to 58.5. One year ago, the index stood at 99.5.

However, Nigel Gault, chief U.S. economist at Global Insight, said the headline figure shouldn't be given much weight since the cut-off date for the survey did not capture many of the recent developments in credit markets.

The ISM-Chicago business barometer posted another surprise to the upside, coming in at 56.7 in September, though still down from 57.9 in August. Economists had expected a reading of 53.0. The advance was led by an increase in production and some improvement in employment, though the job market continues to slow down.

The S&P Case-Shiller U.S. home price index fell more than expected in July as the 20-city composite index posted an annual decline of 16.3%, extending the prior month's 15.9% decline. The Case-Shiller index has fallen every month since peaking in July 2006, but economists say the rate of decline may be slowing, as evidenced by the three-month annualized rates. Economists were expecting the quarterly index to fall to 16.0%.

"The report reaffirms the prevailing view that the U.S. housing sector - which is the epicentre of the current global financial crisis - continues to be in a state of deep distress," said TD Securities economics strategist Millan Mulraine. "And with the inventory of unsold homes remaining well above historical norms, further downward adjustments in prices are expected, though the extent of this price correction may be less pronounced that it has been in the past."

Earlier in the day, the British Bankers' Association reported that the overnight U.S. dollar interbank lending rate (LIBOR) jumped 431 basis points to 6.88%, the largest rise on record. Last week, the overnight LIBOR was 2.95%, suggesting a further sharp tightening of credit conditions in the United States. The news is also confirmed by a report from ICAP, which says the Fed funds rate in the United States opened at 7.00%.

Speaking at an event in New Orleans, Atlanta Fed President Dennis Lockhart (non-voter) said markets pose a serious threat to the economy. "Today we're in the midst of very stressed financial markets with the potential of doing serious damage to the broad economy," Lockhart said. Lockhart warned that consumers may have to "tighten their belt" as credit markets at home and abroad are stretched.

According to the U.S. Institute for Supply Management (ISM), the Milwaukee manufacturing index climbed three points to 46 in September, compared to August's reading of 43. The manufacturing index came in above the consensus expectation of 44.

Annual unemployment rates grew higher in August in 354 out of 369 metropolitan areas, while falling in 13 others, according to a report by the U.S. Bureau of Labor Statistics released Tuesday. This is an increase from the previous month, when unemployment grew in 338 out of 369 metropolitan areas. In 11 of the areas, the unemployment rate in August was at least 10%.

The New York National Association of Purchasing Managers reported that business conditions in the region declined sharply in September, with the headline index reaching 39.1 from 45.2 in August. The outlook index fell to 39.3, the lowest on record, and the prices paid index fell to 68.1. The quantity of purchases index declined to 33.8.

Retail sales advanced 1.1% on an annual basis in the week ending Sept. 13, according to a weekly survey from the International Council of Shopping Centers (ICSC) and Goldman Sachs. Meanwhile, the Johnson Redbook retail survey recorded a 1.0% gain in the week compared to last year.

In Canada, the key release was the July Gross Domestic Product, which advanced 0.7%, well above the 0.2% gain expected by economists. June's rate was 0.1%. The energy sector, which had been on the decline in each of the previous five months, came to life in July, registering a 3.1% increase over June. Mining and oil and gas extraction was up 4.2% from the previous month at close to $57 billion. Manufacturing also showed strength in July, increasing 1.3% to $181.5 billion.

"All this suggests that the third quarter got off to a good start. Even if one assumes quite a lacklustre tone in the August and September numbers, there is still a good chance that third quarter Canadian GDP will be healthy," said Charmaine Buskas, senior economics strategist from TD Securities. "In conjunction with the CPI data which was released last week, suggests that the case for a rate cut in Canada, purely on a macro fundamentals basis, continues to recede."

The Bank of Canada announced on Tuesday that it will be injecting $4 billion to alleviate liquidity constraints in term lending markets. This transaction will come in the form of a 28-day Purchase and Resale Agreement (PRA) to be auctioned on Oct. 1 2008, for settlement on Oct. 2 2008.

The Canadian Real Estate Association reported that seasonally adjusted sales of existing homes fell 3.8% on a month-over-month basis in August as the number of new listings dropped 5.4% from July. Sales were down in all provinces except Alberta, where the number of homes sold edged up 0.2%. Transactions were also down compared to last year's record levels, falling 14.3% from August 2007's 43,332 units sold to last month's 37,118 units sold.

In overnight news, UK GDP stagnated in the second quarter of 2008 compared to the first quarter, according to final estimates published by the Office for National Statistics (ONS). Q2's flat rate follows Q1's 0.3% gain. In annualized terms, the economy grew 1.5%, up from the 1.4% rate expected, but down from the previous quarter's 2.3% increase.

By Stephen Huebl, This email address is being protected from spam bots, you need Javascript enabled to view it , with contributions from Steve Stecyk, This email address is being protected from spam bots, you need Javascript enabled to view it , Patrick McGee, 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 Todd Wailoo, This email address is being protected from spam bots, you need Javascript enabled to view it

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