INSTANT VIEW: ISM index falls in September

NEW YORK (Reuters) - U.S. factory activity contracted for a second month in September, while inflation pressures tumbled and employment in the sector fell, according to an industry report released on Wednesday.

KEY POINTS: * The Institute for Supply Management said its index of national factory activity fell to 43.5 in September from 49.9 in August. The level of 50 separates contraction from expansion. * Economists had expected a reading of 49.5, according to the median of their forecasts in a Reuters poll. The 81 forecasts ranged from 47.0 to 51.1.

COMMENTS:

ANTONIO SOUSA, CHIEF STRATEGIST, DAILYFX.COM, NEW YORK:

"It's much worse... the U.S. economy is still likely to face some substantial challenges ahead. There's growing speculation if the U.S. economy will continue to grow in the face of the all the deleveraging in the financial sector. We still have a vote today in the Senate and tomorrow we have another vote in the House. People are still concerned about if this (bailout) plan will be approved or not."

MARC PADO, U.S. MARKET STRATEGIST, CANTOR FITZGERALD & CO, SAN FRANCISCO:

"For the first time it's really starting to look like a recession. Maybe we don't get that number in the fourth quarter necessarily, but it's going to be tough at this point to avoid a recession. All year I've been saying that you're not going to get a recession, they're stimulating too much. But with the market and credit disruption you're looking at, especially if you get a bad employment number on Friday, it's going to be difficult to ignore the real possibilities of a recession.

"This is a number that is confirming what a lot of people already know and suspect, which is global economies are slowing, therefore our exports are going to start showing signs of slowing and therefore we're not producing as much here. That will probably give us a higher chance of a recession at this point. The last shoe to drop is always jobs, don't be surprised if the jobs number (on Friday) is up there minus 100,000."

GAIL DUDACK, CHIEF INVESTMENT STRATEGIST, DUDACK RESEARCH GROUP, NEW YORK:

"We've been seeing economic weakness for some time. All the Fed regional surveys, the durable goods data -- all was pointing to a slowdown. And with this slowdown going on, you add the inability to fund your business in the short run. That puts all the more pressure on Washington to get something done for the banking system. That remains the No. 1 issue. It's really all about confidence, because without that, things can unravel quickly, and that's what happening in the global financial sector."

CHARLIE SMITH, CHIEF INVESTMENT OFFICER, FORT PITT CAPITAL GROUP, GREENTREE, PENNSYLVANIA:

"Short term credit markets have frozen and it looks as though manufacturing has weakened as well.

"We heard a lot about retail being weak in June and July. It looks like the cautiousness in consumer spending and weakness in short term financing have caused the manufacturing side to pull back."

MARKET REACTION: STOCKS: U.S. stock indexes extend losses. BONDS: Treasury prices extend gains. DOLLAR: U.S. dollar adds gains against euro, extends losses against yen RATE FUTURES:Show rising chance of 50 bps Fed rate cut.

EARLIER DATA: US private sector cuts jobs in Sept