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Stocks closed flat after a Federal Reserve official’s warning that the central bank may need to raise interest rates again to combat inflation. This revived concerns about higher pressure on inflation and its impact on interest rate hikes. Advanced Micro Devices was the bright spot that rallied on an upbeat market share forecast and a broker upgrade.

Today, the Dow Jones industrial average closed down 5.21 or 0.05% to 11,339.84, the Standard & Poor’s 500 closed up 1.30 or 0.10% to 1,298.82, and the Nasdaq composite index closed up 2.27 or 0.11% to 2,150.02.

Market breadth was positive. On the New York Stock Exchange, winners topped decliners by 19 to 13 on volume of 1.21 billion shares. On the Nasdaq, advancers beat decliners by 4 to 3 as 1.59 billion shares changed hands.

Comments from Chicago Fed Bank President Michael Moskow revived worries about the economy. He said ‘this month’s pause to the Federal Reserve’s string of interest rate hikes was “constructive,” but more rate increases could still be needed to cut inflation. The risk of inflation remaining too high is greater than the risk of growth being too low. Thus some additional firming of policy may yet be necessary to bring inflation back into the comfort zone within a reasonable period of time.” All this statement indicates is that there is no guarantee that the Fed is finished raising rates.

The other main focus today was Iran. Its chief nuclear negotiator stated that his country is ready to begin “serious talks” with the U.S. and the five other Western powers that put together an incentive package designed to encourage it to end its nuclear activities. However, he did not make clear whether his country would abandon nuclear enrichment. The U.S. and other Western powers suspect Iran is enriching uranium with a view to building a nuclear bomb. Iran, however, claims its nuclear program is for peaceful purposes.

Shares of Advanced Micro Devices Inc. closed up $1.48 or 6.3% to $24.88, after Bear Stearns upgraded it to “outperform” from “peer perform.” The chipmaker said it aims to capture a 30% share of the global market for computer processors by 2009, by selling more processors that would be used in desktop and laptop computers by businesses.

Toll Brothers Inc. shares closed up $0.43 or 1.7% to $25.20, after reporting lower third-quarter earnings which topped analyst expectations. The company also cut its full-year outlook, blaming it on a glut of homes on the market and a decline in buyer confidence. The company is scaling back its land position as demand for new homes continues to deteriorate.

Stock of XM Satellite Radio closed up $2.28 or 20% to $13.52, after Bear Stearns upgraded it to “outperform” from “under perform.” They opine that the wave of negative catalysts that have plagued the company have subsided. In sympathy, stock of rival Sirius Satellite Radio Inc rose 3.3% to $4.03.

Shares of Microsoft closed down $0.50 to $25.62, after it announced that it is considering making discounts available during the holidays to compel consumers to update their PCs with the new Vista system, even though the system won’t be available until Jan. 2007. This was not taken well by the market.

U.S. light crude oil for September delivery gained 18 cents to settle at $72.63 a barrel on the New York Mercantile Exchange.

All the best,
Manuel Jesus-Backus
The Portfolio Crafter
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