Source: The Canadian Press

North American stock markets are expected to start Tuesday with a small gain as Canadian investors have in hand a reading that inflation dropped slightly in August.

U.S. data showing that construction of new homes rose more than expected in August should also bolster investor confidence, though many are awaiting an important statement from the U.S. Federal Reserve that could hint at more stimulus spending to come.

Ahead of the opening bell, Dow Jones industrial average futures were up 21, or 0.2%, at 10,692. S&P 500 futures were up two points, or 0.2%, at 1,139, while Nasdaq 100 futures were up four points, or 0.2%, at 1,986.

Statistics Canada reported that inflation started to track lower again in August after a big jump in July caused by the introduction of the HST in Ontario, British Columbia.

In the United States, construction of new homes jumped 11% last month, rising above economist predictions that had looked for growth of less than 1%. The big jump fits into a pattern of recent economic reports topping modest forecasts, which has been enough to lift stocks sharply higher throughout the month.

However, trader uncertainty could put a big September rally on Wall Street on hold, at least momentarily, before the central bank’s meeting. Stocks jumped to four-month highs Monday as buying accelerated after the Standard & Poor’s 500 index broke out of its recent trading range, adding confidence to the month-long rally.

Investors want to see if the Fed will announce, or at least hint at, plans to start buying Treasurys and mortgage bonds again to help spark the sluggish economy.

If the Fed were to announce immediate action or paint a grim picture about the health of the economy, stocks could retreat because new pessimism from the central bank could make investors pause after the recent run-up.

Inflation edged down one-tenth of a point to 1.7% in August, as prices on a monthly basis fell 0.1 percentage points from July.

Core inflation, which the Bank of Canada uses to gauge price pressures in the country, was flat at 1.6%, well below the central bank’s two-per-cent target.

The Canadian dollar opened at 97.16 cents US, up 0.01 of a cent from Monday’s close.

Oil prices also ticked lower, benchmark crude for October delivery down 68 cents to $74.18 a barrel in electronic trading on the New York Mercantile Exchange.

On Monday, Toronto’s S&P/TSX composite index added 69.95 points to 12,234.51, lifted by stronger commodities.

The December bullion contract in New York hit another record, closing up $3.30 at US$1,280.80 an ounce. On Tuesday morning it was down 50 cents to $1280.30 in electronic trading on the Nymex.

In corporate developments, Crescent Point Energy Corp. (TSX:CPG) announced late Monday that it would acquire exploratory properties in southern Alberta and Saskatchewan and also increased its production guidance for 2010 on Monday.

Canfor Pulp Income Fund (TSX:CFX.UN, TSX:CFP) announced Monday it has increased its monthly distribution to 25 cents per unit, up from 22 cents.

Overseas, Britain’s FTSE 100 rose 0.5%, Germany’s DAX index rose 0.6%, and France’s CAC-40 gained 0.7%. Japan’s Nikkei stock average fell 0.3%.