MORNING REPORT(8.00am AEDT)

The US ISM manufacturing index improved a little more than expected, rising to a six month high of 53.9 in December from 52.7 in November. Construction spending rose by 1.2pct in November, ahead of forecasts centred on a 0.5pct rise. And the US Federal Reserve will start releasing participants´ projections of the target fed funds rate, starting at the January 24 meeting.

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German unemployment fell by a greater than expected 22,000 in December to 2.89 million, taking the unemployment rate down to 6.8pct, a new post re-unification low.

A Belgian 3-month and 6-month bills auction was the latest successful foray into the markets for European sovereign borrowers. The Belgian Treasury raised EUR2.44 billion at yields of 0.264pct and 0.364pct respectively, more than the EUR2.2 billion planned. The previous 3-month bills auction was at a significantly higher yield of 0.78pct.

The Chinese non-manufacturing purchasing managers index soared from 49.7 to 56.0 in December. And the UK manufacturing PMI rebounded surprisingly in December to a three-month high of 49.6, up from 47.7 in November.

European shares hit a five-month high on Tuesday in response to favourable global economic data. In London, shares in BHP Billiton rose by 6.2pct with Rio Tinto up 6.4pct. The FTSEurofirst index rose by 1.6pct with the UK FTSE up 2.3pct and German Dax up 1.5pct.

US shares posted firm gains in the first trading day of 2012 with investors encouraged by economic data. At the close, the Dow Jones was up by 179 points or 1.5pct after being up 262pts in early trade. The S&P 500 rose by 1.6pct, and the Nasdaq was up by 44 points or 1.7pct.

US treasury prices fell on Tuesday (yields higher) as investors shifted from safe-haven bonds to more ´´risky´´ assets such as equities and commodities. US 2yr yields rose by 1pt to 0.26pct and US 10yr yields rose by 7pts to 1.95pct.

The US dollar eased against major currencies as investors again embraced riskier assets such as shares and commodities. The Euro rose from lows near US$1.2970 to around US$1.3070 and was near US$1.3055 in late US trade. The Aussie dollar rose from lows around US102.85c to US103.85c, and was around US103.70c in late US trade. And the Japanese yen lifted from 76.85 yen per US dollar to JPY76.60, and was near JPY76.65 in late US trade.

World crude oil prices rose on Tuesday in response to stronger global economic data, a weaker greenback and tensions between the US and Iran. Nymex crude oil rose by US$4.13 or 4.2pct to US$102.96 a barrel and London Brent crude rose by US$4.75 or 4.4pct to US$112.13 a barrel.

Base metals posted gains between 1.0-4.1pct on Tuesday in response to stronger global manufacturing data. And the gold price rose in response to a weaker US dollar with the Comex February gold price up US$33.70 or 2.2pct to US$1,600.50 an ounce.

Ahead: In Australia, no major economic data is scheduled. In the US, car sales and durable goods orders data are released.