North American markets are likely to rally Tuesday morning ahead of the U.S. Federal Reserves decision on interest rates as oil prices retreat.

The Fed’s announcement on interest rates is due at around 14:15 ET. Most economists expect the U.S. central bank to raise its interest-rate target by a quarter percentage point to 3.75%. It would be the 11th increase in 15 months.

Market watchers will read also the accompanying statement closely for signs of future moves.

Crude-oil prices retreated early Tuesday, falling $1.04 to US$66.35 a barrel. The decline came one day after oil prices surged 7%, or $4.39 as tropical storm Rita threatened the U.S. Gulf Coast production and refining assets spared by hurricane Katrina just three weeks ago.

In this morning’s economic news, the U.S. Commerce Department said August housing starts decreased 1.3% to a seasonally-adjusted 2.009 million annual rate. July starts, originally estimated at 2.042 million, were revised downward by 1.5% to 2.035 million. Economists called for starts to decline 1.1% to a 2.020 million annual rate in August.

Here at home Statistics Canada reported that Wholesale sales declined for the first time in six months, falling 0.5% in July.

The government agency said the weakness in sales was attributable to lower demand for building materials, and machinery and electronic equipment.

Separately, StatsCan reported the leading indicator posted a 0.3% gain in August, the same as July. The August increase was led by strong domestic demand/

In earnings news, Wall Street investment bank Goldman Sachs posted record third-quarter earnings of US$3.25 a share, on revenue of US$7.29 billion.

In other business news, the Canadian Auto Workersstruck an early-morning settlement with DaimlerChrysler on today that averted a strike by 11,400 Ontario employees.

Overnight in Asia, the Japanese Nikkei 225 index closed at 13,148.57 points on the Tokyo Stock Exchange on Tuesday, up 189.89 points, or 1.47%, its highest closing price since June 2001.

The market was closed Monday for a national holiday.

In Hong Kong, the blue chip Hang Seng Index rose 258.66 points, or 1.7%, to 15,241.86.

On Monday, Toronto stocks moved higher fuelled almost entirely by a surging energy sector, riding crude oil’s biggest one-day jump in price ever.

The S&P/TSX composite index finished up 34.14, or 0.31%, to 11,024.73.

Volume was 316 million shares.

The Canadian dollar reached a 13 1/2-year high, closing at 85.57 U.S. cents, up 0.73 cent, after hitting an intraday high of 85.74 U.S. cents.

Light, sweet crude for October delivery rose US$4.39, or 7%, to settle at US$67.39 a barrel on the New York Mercantile Exchange.

Six of the 10 TSX main sub-groups were down on the day, but the energy group was up 2.29%.

The S&P/TSX venture exchange finished up 23.28, or 1.14%, to 2,069.80.

In New York, markets fell on the higher price of crude and uncertainty before tomorrow’s rate announcement from the U.S. Federal Reserve.

The Dow Jones industrial average was down 85.74 points, or 0.81%, to close at 10,556.20; the S&P500 index was down 6.96 points, or 0.56%, at 1,230.95. The Nasdaq composite index was down 15.09 points, or 0.70%, at 2,141.07.