Circumstances are the rulers of the weak; they are but the instruments of the wise.  Samuel Lover.

Looks like the bulls may have to settle down a bit. On a day when the world markets were a bit skittish India managed to outperform. The breadth was positive, partly thanks to persistent surge in small caps. Turnover was also good. Most of the buying came from local funds even as FIIs were net sellers. The momentum in Small Caps is being driven by retail investors.

The big question is can this rally sustain? At least today we expect some softening due to fresh weakness in global markets. US and European markets fell amid renewed concerns over the health of the eurozone banks. Asian markets are also down this morning.

There are reports that Europe’s much hyped “stress tests” weren’t tough enough and that the strength of region’s financial system remains suspect. And, if the advance in the yen and gold are any indication risk aversion is still high.

Global factors and events will continue to drive the local sentiment, apart from liquidity. The near-term trading range on the Nifty is 54005700. The market will meet resistance around 5650 and around 5680 before hitting 5700. Near-term support is likely at around 5550.

Bank of Canada will take a call on rates tomorrow. The Bank of England will review its policy on Thursday.

The RBI meets on Sept. 16 to review its policy rates. The latest IIP data will be out on Sept. 10 and August inflation on Sept. 14.

IT firms could be in action again amid reports that the state of Ohio has banned outsourcing of government contracts. Sun Pharma is the stock to watch out for as the Supreme Court of Israel has announced a favourable verdict in the case against Taro Pharma. Oil PSUs might also gain amid reports that the Government has increased petrol and diesel prices by a few paise.

FIIs were net sellers of Rs208.8mn in the cash segment on Tuesday (provisionally), according to the NSE web site. Local funds were net buyers of Rs4.41bn. In the F&O segment, the foreign funds were net buyers at Rs22.16bn. FIIs were net buyers of Rs10.39bn in the cash segment on Monday, as per SEBI's web site. Mutual funds were net buyers of Rs3.54bn on the same day.

Important News Snippets For The Day:

Petrol and diesel prices across the country will increase by 913 paise a litre with effect from Tuesday midnight, after the government decided to increase the commission to petrol pump dealers.

Maruti Suzuki plans to invest around Rs19.25bn for setting up a third plant at its second facility in Manesar.

Tata Steel is looking for a buyer for its South African unit after agreeing to sell its Teesside operations in the UK.

JSW Steel's crude steel production in August increased 3% to 539,000 tonnes against the 521,000 tonnes logged in the same period last year.

BHEL plans to leverage its balance sheet and reserves to set up an equipment financing arm through a JV.

HDFC has relaunched its teaser home loan scheme, while SBI may extend its own.

SBI plans to raise Rs5bn via sale of retail bonds.

Wipro expects higher US visa costs to have a moderate impact on its operating margins in the current financial year.

Adani Power is expected to gain up to Rs10mn/day as the Finance Ministry has reduced Customs duty on electricity generated and supplied from an SEZ into a Domestic Tariff Area (DTA).

Ashok Leyland said it plans to raise up to6bn in long-term debt this fiscal to fund its capital expenditure plans till 2011-12.

Essar Oil, may start supplying gas to the Durgapur facility of Phillips Carbon Black from its Ranigunj (East) CBM block, beginning October.

SpiceJet has announced the commencement of its international operations, with its first flights to Kathmandu and Colombo ready to take off in four weeks.

KEC International has signed a definitive agreement to acquire Texasbased SAE Towers Holdings for US$95mn.

Neyveli Lignite is hoping to take part in the ultra mega power project (UMPP) that is to come up at Cheyyur in Tamil Nadu.

Shipping Corporation of India plans to purchase a stake in a shipyard to diversify its business.

Telecom operators in the country added 17 million subscribers in July this year, taking the total number of mobile users in the country to 652.4 million.

The country’s tea exports fell by nearly 20% to Rs2.1bn in July.

The Government on Tuesday exuded confidence that the new company law will be enacted by the end of this fiscal.

Asian Markets on Tuesday:

Japanese stocks were sharply lower after the yen hit a fresh 15-year high against the US dollar overnight, weighing on exporters.

The Nikkei Stock Average was down nearly 2% at 9,044 while the broader Topix fell 1.4% to 822.9. Export-focused stock suffered after the dollar fell to an intraday low of ¥83.49.

Hong Kong shares dropped early Wednesday as renewed worries about European banks weighed on sentiment. Heavyweight China Mobile fell sharply on a report Vodafone Group is selling its 3.2% stake in the Chinese mobile-services giant.

The Hang Seng Index fell 1% to 21,186.49, and the Hang Seng China Enterprises Index gave up 1.5% to 11,782.81.

The MSCI Asia Pacific Index lost 1.2% to 120.36 as of 11:40 a.m. in Tokyo.

Futures on the Standard & Poor’s 500 Index dipped after the gauge sank 1.2% in New York.

The yen, which reached the highest value since June 1995 versus the dollar yesterday, gained versus all 16 major counterparts on higher demand for Japan’s currency as a refuge.

Gold was less than 1% away from a record high. Crude oil and copper declined amid weaker demand for commodities.

US Markets on Tuesday:

US stocks slid after an extended weekend as renewed worries about European banks weighed on financial stocks and investors sought refuge in safe-haven assets such as the dollar, Treasurys and gold.

After tallying its best pre-Labor Day week since 1990, the Dow Jones Industrial Average fell 107.24 points, or 1%, to 10,340.69, with 26 of its 30 components losing ground.

The S&P 500 Index shed 12.67 points, or 1.2%, to 1,091.84, with financials weighing the most heavily among its 10 industry groups.

The Nasdaq Composite Index declined 24.86 points, or 1.1%, to 2,208.89.

The dollar gained against the euro and gold, and US Treasury prices rallied.

Trading volume has been particularly low in the US lately, and did not show any immediate signs of picking back up as traders returned from their vacations after the Labor Day holiday. Three stocks fell for each issue on the rise on the New York Stock Exchange, where volume neared 542 million.

Treasury yields held steady after the government's sale of $33 billion in 3-year notes, awarded at a record low 0.79% rate. The yield on the 10-year Treasury note, a measure used in setting interest rates on mortgages and other consumer loans, fell to 2.600% as its price rose.

On the New York Mercantile Exchange, gold futures gained $8.20 to end at $1,259.3 an ounce, topping its record close reached in June.

Crude oil futures shed 51 cents to end at $74.09 a barrel.

On Friday, US stocks tallied their first positive weekly showing since early August, with the Dow up 2.9% for the week as it edged back into positive turf for the year. But Tuesday's losses quickly turned the index back into the red.

September is traditionally a softer month for US stocks, and so far Wall Street has escaped that. But lingering worries won't diminish until we get more indicators that show the decline in economic activity is ebbing and beginning to turn around again.

On Wednesday, the Federal Reserve will release its so-called Beige Book, offering a glimpse at regional economic activity, while on Thursday the government releases its weekly count of those filing initial claims for unemployment benefits.

On Tuesday, investors questioned the shape of the European banks, because reports said their sovereign debt holdings are weaker than previously thought.

The renewed worries came after an analysis in Wall Street Journal that said Europe's stress tests - aimed at measuring the health of the continent's financial sector - understated major banks' holdings of government debt. Financial stocks sank after the report.

President Barack Obama will introduce a new $200 billion tax cut on Wednesday that will allow businesses to write off all new investments in equipment made between now and the end of 2011.

A reading on hiring from employment firm Manpower showed that employers are likely to remain reluctant to boost hiring in the fourth quarter.

Shares of Oracle gained after the business software maker said it has hired former Hewlett-Packard CEO Mark Hurd as its president. Later in the day, HP filed suit to block Hurd from the taking the job.

Meanwhile, Barclays shares sank after the British bank announced its CEO John Varley will retire March 31. Bob Diamond, the bank's U.S.-born president and investment banking chief, will replace Varley.

European Markets on Tuesday:

European stock markets snapped their recent winning streak to close lower, weighed down by losses in the banking and commodities sectors. European equities also suffered losses as worse-than-expected German manufacturing data show ed a decline in new orders.

The Stoxx Europe 600 Index shed 0.5% to 259.76. In the UK, the FTSE 100 index closed down 0.6% to 5,407.82, while the French CAC 40 index fell 1.1% to 3,643.81. The German DAX 30 index dipped 0.6% to 6,117.89.

Banks were among the biggest losers in Europe as regulators met in Basel to finalize new global rules on capital requirements.

Europe’s highly touted stress tests of major banks earlier this summer understated holdings of potentially risky government debt, The Wall Street Journal reported on Tuesday.

The euro suffered after the German Banking Association said that the country’s 10 biggest lenders may need another €105bn of additional capital.

Germany's Die Zeit reported late on Monday that banks could be required to hold a Tier 1 capital level of 9% under new rules dubbed Basel III, potentially rising to 12% in boom years in order to build reserves to pay for a downturn.

The Federal Association of German Banks had estimated that the country's ten largest lenders could need as much as 105 billion euros ($135 billion) of extra capital under planned Basel rules.

Shares in Credit Agricole fell. French banks have some of the highest exposures to risky European countries such as Greece and other domestic lenders also fell sharply.

Barclays declined in London after it also announced that Robert Diamond, the head of its investment banking arm, will take over as chief executive of the entire group next year. Diamond will succeed John Varley, who plans to step down next March.

Stephen Green, chairman of HSBC Holdings will leave the bank to become the UK trade and investment minister. Shares of HSBC outperformed the rest of the sector, losing just 0.1%.

Mining stocks finished the day in the red after the Australian Labor Party gained the support of enough independent lawmakers to form a minority government, raising worries that a proposed mining tax would be put in place.

After a remarkable Monday, the Indian market lost some steam amid lack of decisive cues from the Asian and the European markets. Despite that, the NSE Nifty managed to end above the 5600 mark - hitting the mark for the first time since January 2008.

"Cement heavyweights like ACC, Ambuja Cement, India Cement and others surged in a lackluster market amid reports that cement prices in South India have risen by Rs25 to Rs40 per 50-kg bag," says Amar .

Capital Goods, IT and Metal stocks led from the front, even the Mid-Cap and the Small-Cap stocks were in demand.

The Sensex gained 85 points to close at 18,645. The index hit an intra-day high of 18,711 and an intra-day low of 18,571.

The NSE Nifty rose 15 points to close at 5,592 after touching a high of 5,625 and a low of 5,571.

Among the BSE sectoral indices ended in the green, the BSE Capital Goods index was the top gainer the index was up 1.3%, followed by BSE IT index (up 1%) and BSE Metal index (up 0.8%) and BSE Teck index (up 0.8%).

Even the broader indices ended with gains, the BSE Mid-Cap index was up 0.2% and BSE Small-Cap index was up 0.6%.

Markets in Asia ended mixed; the Nikkei in Japan lost 0.8%, Australia's S&P/ASX ended flat, the Hang Seng index in Hong Kong added by 0.2% and the Shanghai SE Composite edged higher by 0.2%.

The European indices were trading slightly lower, the DAX in Germany was down 0.8%, the CAC 40 index in France was down 1.2% and the FTSE in the UK was down 1%.

Outside the frontline indices, the big gainers in the broader market were Madras Cement, India Cement, Gujarat NRE Coke, Godrej Ind and GMDC. On the other hand, losers included EXIDE Ind, Petronet LNG, Koutons and Sterling Bio.