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INSTANT VIEW 3-US producer prices up on surging gasoline, core rate flat

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NEW YORK, Oct 12 (Reuters) - U.S. producer prices rose morethan expected in September as the cost of energy surged, agovernment report showed on Friday, but underlying inflationpressures were muted.

STORY: TABLE COMMENTS:

DAVID ADER, HEAD OF GOVERNMENT BOND STRATEGY, CRT CAPITALGROUP, STAMFORD, CONNECTICUT

"Quite a bit friendlier than expected due to the ex-energycomponents, though the core pipeline prices are a bit of aconcern though in the context of a string of negative printsand, still, negative year-on-year figures. Small concern at themoment. The bond market sees this from our perspective and isfirmer after the data, though it's been firm all morning anyway,with 30-year bonds the outperformer."

CARY LEAHEY, ECONOMIST, DECISION ECONOMICS, NEW YORK

"I would say the report is mixed. The headline was obviouslya little higher than expected and of course anything over 1 pctgrabs your attention. But if you take out food and energy youare essentially looking at a number that didn't go anywhere andwas actually probably a little weaker than expected. So that isa mixed bag but obviously energy is counted in the equation andprices did go up and that has been reflected in the economy.These kinds of energy prices are debilitating to the economy andit is one of the reasons why we haven't been able to get anykind of a glide speed above a 2 percent annual rate."

TODD SCHOENBERGER, MANAGING PRINCIPAL AT THE BLACKBAY GROUPIN NEW YORK

"If you look at the month-over-month, it did cool down abit, which is interesting. People who expect recent Fed actionsto lift inflation are probably right, but I don't think we'llsee the impact of that for a few months, so enjoy this while youcan.

"This shouldn't impact trading as traders remain focused onearnings and outlooks. That will have a much bigger impact ontrades right now."

MARKET REACTION:

STOCKS: U.S. stock index futures held onto their earliergains .

FOREX: The dollar maintained its losses versus the euro andheld its gains versus the yen .

BONDS: U.S. 30-year Treasury bonds hit session highs as corePPI suggested a muted inflation trend .

(Americas Economics and Markets Desk; +1-646 223-6300)

Keywords: USA ECONOMY/PPI