US Federal Reserve head Ben Bernanke says financial markets have improved since the onset of the credit crisis, but conditions are far from normal.

 

Mr Bernanke has noted the huge amounts of liquidity that have been pumped into the system.

 

Inflation, meanwhile, has been the watchword for other Fed officials speaking overnight.

 

And the latest measure of retail activity in the US has come in stronger than expected.

 

Excluding a sharp drop in car sales, the underlying measure of retail sales is up 0.5 per cent for April.

 

Wal-Mart has reported record quarterly earnings of just over $3 billion for the first quarter, up 6.9 per cent from last year.

 

Bond yields rose sharply and market chatter is starting to centre on the possibility of US interest rate increases by year end.

 

On the New York Stock Exchange, the Dow Jones industrial average closed 44 points lower at 12,832.

 

The high-tech Nasdaq composite index added seven points to 2,495.

 

European share markets were mixed, with the French and German markets up, but the British market falling back a touch.

 

London's FT-100 index has slipped nine points to 6,212.

 

The Australian market yesterday eased back, although the banking sector continued to provide the highlights amid the $19 billion dollar Westpac bid for St George Bank.

 

St George shares jumped more than 25 per cent in value to close at $33.37, which was just above the bid price.

 

The All Ordinaries index fell 11 points to 5,883.

 

Looking at the overnight session on the Sydney Futures Exchange and the Share Price Index 200 contract has closed up one point at 5,845.

 

The 10-year bond contract is down six-and-a-half points at 93.72, with the implied yield rising to 6.28 per cent.

 

On foreign exchange markets, the Australian dollar has fallen back against a resurgent US dollar.

 

A short time ago about 7:43am (AEST) it was buying 93.95 US cents, 0.6078 euros, 98.49 Japanese yen, 48.31 pence Sterling and $NZ1.230.

 

Gold price has dropped overnight and was being quoted at $US866.50 an ounce.

 

Crude futures on the New York Mercantile Exchange peaked at $US126.98 a barrel and the spot price of West Texas crude is up $1.81 at $125.83.