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Eurozone faces disaster as Italian bond yields pass 7%. Yields on Italian 10-year government bonds have surged past the critical 7% mark widely seen as unsustainable, and were at 7.447% at midday in Europe. EU shares have reversed course after opening higher, with Milan stocks sinking 4%, while U.S. stock futures were lower also. The ECB has stepped back into the market and is buying in "decent sizes" as it looks to avert catastrophe for Italy and the eurozone. The market turmoil comes despite Silvio Berlusconi yesterday saying he would step down after passing urgent economic reforms and holding elections in which he wouldn't stand. However, the poll is unlikely to occur until February, leaving a three-month vacuum for the markets to create havoc.

Fannie to request another $7.8B as losses soar. Fannie Mae (OTCQB:FNMA) yesterday said it will seek $7.8B in additional federal aid to stay afloat as it reported a $5.1B net loss in Q3 2011. However $2.5B will be used to cover dividends to the government. Fannie's loss was due to declining home prices causing more defaults, and lower mortgage rates following refinancings. Fannie has so far drawn $112.6B in Treasury bailout funds and has paid $17.2B to the government in dividends. Its request for more cash follows Freddie Mac (OTCQB:FMCC) last week asking for $6B in extra aid after it reported losing $6B in Q3.

China inflation falls to +5.5%. Amid all the turmoil surrounding Italy, China has provided some cheer for the global economy, with October CPI slowing by the most in almost three years to an annualized +5.5% from +6.1% in September. Producer prices rose just 5% against expectations of 5.8% and September's 6.5%. The trends may persuade China to loosen its tight monetary policy, especially as October industrial output slowed to +13.2% from +13.8% in September.

Goldman raising $1.54B in sale of Chinese bank shares. Goldman Sachs (NYSE:GS) is seeking to raise up to $1.54B by offering 2.4B shares in Industrial & Commercial Bank of China (OTCPK:IDCBF), a move that would exploit a 50% recovery in the latter's shares since October. However, Goldman is selling the stock at a discount of 3.7%-6% to the last traded price. This is the third time Goldman is selling shares in ICBC, raising a total of $5.9B.

AOL, Microsoft, Yahoo team up in online ad battle. AOL (NYSE:AOL), Microsoft (NASDAQ:MSFT) and Yahoo (NASDAQ:YHOO) have agreed to share access to each other's premium unsold ad inventory as they look to overcome the increasing dominance of Google (NASDAQ:GOOG) and Facebook. AOL, Microsoft and Yahoo will still compete with each other for advertiser spending and Internet publisher partners, and don't expect antitrust concerns from the Department of Justice. Time will tell on that score.

Cisco to show whether it's turning the corner. Cisco (NASDAQ:CSCO) is due to report FQ1 earnings after the bell today, with analysts expecting that EPS grew to $0.40 from $0.34 a year earlier and that revenue rose to $11.03B from $10.75B. SA author Vatalyst says the results "will give investors the clearest indication yet on whether the company has turned the corner" after a difficult year that it has spent retrenching and refocusing on its core operations. In addition, given decreasing spending by governments and telecom operators, and mounting economic uncertainty, Reuters reports differing analyst opinion over whether Cisco's FQ2 guidance will be positive or not.

Yelp to target $2B IPO. Yelp will soon look to surf the wave of enthusiasm for Internet stocks in an IPO that could value it at up to $2B, reports say. Founded in 2004, the consumer-review company makes its money from advertising, with one estimate predicting its revenues will hit $100M next year. Yelp was a pioneer in blending three areas that are driving the expansion of consumer Internet start-ups: social networking, local commerce and mobile communications — a triumvirate sometimes called "solomo."

USDA seen reducing corn forecast as prices surge. The Department of Agriculture is expected to cut its forecast for corn production to 314.7 metric tons, 27.4M tons lower than four months ago, due to a drought that has damaged what was a record crop as recently as July. The lower production has driven annual prices to an all-time high and curbed the growth in global food supplies. Corn futures have increased 5% this year to $6.605 a bushel vs. a 12% drop in the S&P GSCI Agriculture Index, with prices jumping 15% since October. The USDA is due to report crop production and other data this morning.

Rajaratnam fined record $92.8M. Raj Rajaratnam, the Galleon Group founder convicted last month of insider trading, has been ordered to pay a record $92.8M penalty in a related civil case brought by the SEC. The fine adds to Rajaratnam's 11-year prison sentence and to $63.8M he has already paid in the criminal case.

Today's Markets:
In Asia, Japan +1.9% to 8801.4. Hong Kong +3.1% to 19843. China +0.8% to 2528. India +0.5% to 17563.
In Europe, at midday, London -1.9%. Paris -2.7%. Frankfurt -2.7%.
Futures at 7:00: Dow -1.7%. S&P -2.2%. Nasdaq -1.7%. Crude -1.3% to $95.50. Gold -0.8% to $1784.30.

Wednesday's economic calendar:
7:00 MBA Mortgage Applications
9:00 Ceridian-UCLA Pulse of Commerce Index
9:30 Ben Bernanke: Small Business and Entrepreneurship during an Economic Recovery
10:00 Wholesale Trade
10:30 EIA Petroleum Inventories
12:15 PM Daniel Tarullo speaks on financial regulation
1:00 PM Results of $24B, 10-Year Note Auction

Earnings Results: Companies that beat EPS expectations last night and today include Activision (ATVI), Amdocs (DOX), Universal Display (PANL), International Game Technology (IGT), Weight Watchers International (WTW).

Those in line include McDermott International (MDR).

Full real-time earnings coverage here.

Notable earnings before Wednesday's open: AG, CSC, DF, GGP, GM, IAG, M, NOG, RL, SLW, WEN

Notable earnings after Wednesday's close: BEXP, CSCO, GMCR, MBI, MDVN, NDN, SPRD, SSRI, VSEA

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Source: Wall Street Breakfast: Must-Know News