U.S. STOCK MARKETS

U.S. stocks closed mixed Tuesday after a key report showed the third straight monthly contraction in the manufacturing sector, a key engine behind the economy's still-sluggish recovery.

The Dow Jones Industrial Average was down 54.90 points (0.42 percent), finishing at 13,035.94. The broad-based S&P 500 slipped 1.64 (0.12 percent) to 1,404.94, while the tech-rich Nasdaq gained 8.10 (0.26 percent) at 3,075.06.

Medicis Pharmaceutical Corporation soared 38.3 percent after agreeing to be acquired by Canadian firm Valeant Pharmaceuticals International in a $2.6 billion cash deal. Valeant scored a 14.7 percent gain.

Major automakers reported strong August US sales numbers. General Motors slipped 0.2 percent after beating estimates with a 10 percent gain in sales over a year earlier, while Ford Motor Co. was up 0.8 percent on a 13 percent rise and plans to boost production.

Campbell Soup was down 0.1 percent, off earlier gains, after reporting quarterly profit above estimates. Caterpillar led losers on the Dow, falling 3.1 percent. Heavyweight Apple supported the Nasdaq, bouncing 1.4 percent higher.

The California gadget maker on Tuesday invited members of the media to a September 12 event in San Francisco for what is expected to be the debut of a new-generation iPhone.

Marking the first trading day of the month, Fred Dickson at DA Davidson & Co. warned that over the last 40 years, September has been the most difficult month of the year for investors.

An unexpected drop in U.S. manufacturing activity drove European stock markets deeper into negative territory on Tuesday, with drug makers and resource firms feeling the most pressure.

EUROPEAN STOCKS, BOND MARKETS

Markets opened on a weak note after Moody's Investors Service warned that the European Union could lose its Aaa debt rating, increasing pressure on the European Central Bank to activate stimulus measures.

The Stoxx Europe 600 index tumbled 1.1% to close at 265.43, pulling back after the index on Monday posted its best performance in a month. Investors remained cautious ahead of the ECB's policy meeting on Thursday, as they worried that ECB President Mario Draghi would fail to outline details of the bank's proposed bund-buying program.

Among notable movers on Tuesday, shares in Dutch supermarket company Royal Ahold NV rose 2.5% after the firm said it's exploring strategic options for its 60% stake in ICA AB. Drug makers were the biggest decliners on the pan-European index.

Sanofi SA lost 3%, as its Genzyme unit settled a U.S. lawsuit with Impax Laboratories Inc., granting Impax licenses to sell generic versions of two kidney disease drugs.

Roche Holding AG gave up 1% and GlaxoSmithKline PLC fell 1.6%. For the broader stock markets, an unexpectedly weak reading of U.S. manufacturing activity dragged bourses lower in afternoon trading action.

The Institute for Supply Management factory index fell to 49.6% in August, from 49.8% in July, marking a third straight month of contraction. Economists expected an increase to 50.2%.

The European Union's credit rating also got attention after Moody's overnight cut the outlook on the region to negative. The credit-rating firm said it needed to adjust its outlook on the EU due to the likelihood that the large Aaa-rated member states would likely not prioritize their commitment to backstop the EU debt obligations over servicing their own debt obligations.

Late Monday, ECB President Mario Draghi indicated in closed-door testimony before the European Parliament that a new bond-buying program could include bonds with maturities as long as three years without violating the ECB's mandate, according to media reports.

The reports spurred a rally in Spanish and Italian bonds. The yield, which moves inversely to prices, on 10-year Italian government bonds fell 11 basis points to 5.66%, according to electronic trading platform Tradeweb.

Spain's 10-year yield dropped 28 basis points to 6.55%. Yields fell more sharply at the short end of the Spanish and Italian yield curves.

The IBEX 35 stock index gained 0.7% to 7,488.20. Banco Popular Espaol SA picked up 4.8% as it said it is considering taking over smaller peer Banco Mare Nostrum.

Shares in wireless-telecom firm Vodafone Group PLC fell 2.6%. Bernstein Research cut the stock to market perform from outperform, citing an increasing number of negative operational risks.

The U.K.'s FTSE 100 index posted the biggest drop in more than a month and lost 1.5% to 5,672.01. BP PLC slipped 1.6% and miner Rio Tinto PLC gave up 2.6%.

Oil prices fell, while metals prices were higher across the board. Royal Bank of Scotland Group PLC gave up 2.6% after Investec Securities cut the stock to hold from buy.

In Germany, Deutsche Bank AG fell 2.3%, weighing on the DAX 30 index, which slid 1.2% to 6,932.58. Deutsche Lufthansa AG fell 1.3% after a strike called by the German labor union UFO caused the airline to cancel more than half its short- and medium-haul flights, and some long-haul flights, at Frankfurt Airport. France's CAC 40 index dropped 1.6% to 3,399.04, marking the worst daily performance in a month. Heavyweight oil group Total SA lost 1.6%.

ASIA-PACIFIC STOCK MARKETS

Asian markets were lower Tuesday, ahead of a key European Central Bank policy meeting on Thursday, with the Shanghai Composite hitting a multi-year low as investors were disappointed by the absence of sufficient monetary easing.

This was most true in China, where the Shanghai Composite ended down 0.8% at 2043.65, a fresh three and a half year low, where the market was disappointed that Beijing had failed to intervene after releasing poor manufacturing data for August.

The Hang Seng Index was 0.7% lower at 19429.91. Monday, HSBC's China Purchasing Managers' Index fell to its lowest level since March 2009 in August, while China's official manufacturing PMI, released on Saturday, slumped to a nine-month low and was below 50 for the first time since November.

Australia's S&P ASX 200 was also off 0.6% at 4303.50, trailing the Chinese markets, as gains in resource stocks offset losses in the banking sector.

The Reserve Bank of Australia did not change interest rates and acknowledged that China's economy had deteriorated. The steady rates helped the Australian recover after trading lower earlier in the session to $1.0268.

South Korea's Kospi was down 0.3% to 1907.13. In company news, Sharp shares bounced 12.4% in Tokyo, recovering a good chunk of its 19% fall over the past three sessions, after a media report in Taiwan that Hon Hai Precision Industry's chairman Terry Gou said he was definitely going to get involved in the management of Sharp.

Both Aluminum Corp. of China, also known as Chalco, and SouthGobi Resources moved in Hong Kong on news that the Chinese metals giant had ended its bid to acquire the Mongolia-focused coal miner. Chalco was up 0.3% and SouthGobi was down 6.5%.

COMMODITIES

Base metals on the London Metal Exchange closed mostly lower Tuesday after lackluster U.S. economic data triggered renewed concerns about the health of the global economy and eclipsed positive signals from the European Central Bank that hinted at help for struggling euro-zone countries.

At the close, LME three-month copper slipped 0.6% on the day to $7,634 a metric ton. Aluminum on the other hand rose 1% to $1,944.50 a ton. Lead, nickel and tin all closed lower while zinc rose. LME base metals closed mostly lower after the U.S. reported lower construction spending in July and August contraction in the manufacturing sector.

U.S. spending on construction projects dropped to a seasonally adjusted annual rate of $834.38 billion in July, the largest drop in a year, as outlays for home building, commercial and government projects all fell.

Economists had forecast spending would rise. U.S. crude-oil futures fell Tuesday amid declines in broader markets as worries re-emerged about the economic outlook following weak data on the manufacturing sector.

Light, sweet crude for October delivery settled $1.17, or 1.2%, lower at $95.30 a barrel on the New York Mercantile Exchange, after trading as high as $97.37 a barrel earlier in the session. Brent crude on the ICE futures exchange settled $1.60, or 1.4%, lower at $114.41 a barrel.

Gold futures briefly moved above $1,700 a troy ounce in intraday trading Tuesday for the first time in five months as traders and analysts said poor U.S. manufacturing data gives the Federal Reserve more reason to introduce fresh stimulus measures. Compiled from MORRISON SECURITIES PTY. LTD.