(Repeats to fix typo in headline)
(Updates with late U.S. prices, adds remarks by Federal
Reserve official)
By Jennifer Ablan
NEW YORK, Feb 6 (Reuters) - A modest rally in U.S. stocks
fizzled quickly in late trading on Wednesday after a Federal
Reserve official warned that inflation was still a key concern,
keeping Treasury bond prices under pressure.
The dollar also moved downward, edging lower against the
yen and largely unchanged against the euro with investors
reluctant to place big bets on currencies ahead of a key
interest-rate decision on Thursday from the European Central
Bank.
The rise in stocks had reduced the safe-haven appeal of
U.S. government debt, but Treasuries could not reverse their
downward movement after the remarks on inflation by
Philadelphia Federal Reserve President Charles Plosser.
Plosser, speaking in Birmingham, Alabama, said he would not
be against further rate cuts if the economy deteriorates more
than expected, but said the Fed "must not lose sight of the
other part of the Fed's dual mandate -- which is price
stability."
In recent weeks, concerns have intensified about the depth
of the U.S. housing and credit crisis, as data on the consumer
and labor front have revealed renewed weakness in the economy.
The biggest U.S. department store Macy's Inc. <M.N> added
to pessimism late in the session after it released dismal sales
figures, raising anxiety about Thursday's wave of sales results
from a slew of other retailers.
The Dow Jones industrial average <> closed down 65.03
points, or 0.53 percent, at 12,200.10, according to preliminary
figures. The Standard & Poor's 500 Index <.SPX> ended down
10.19 points, or 0.76 percent, at 1,326.45. The Nasdaq
Composite Index <> finished down 30.82 points, or 1.33
percent, at 2,278.75.
In Asia earlier, Japan's Nikkei .N225> lost about 5 percent
in trading. It was the Tokyo market's first opportunity to
react to Tuesday's huge drop in a gauge of the U.S. service
sector -- the U.S. Institute for Supply Management's index of
non-manufacturing industry -- which hit levels not seen since
the 2001 U.S. recession.
In Europe, the pan-European FTSEuropfirst 300 index
<>> settled up 0.58 percent on Thursday, after plunging
3.09 percent the previous day.
BONDS HAVING A BAD DAY
U.S. Treasury debt prices, which were lower in earlier
trade on profit-taking, fell further on Plosser's comments.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
down 10/32, with the yield at 3.5996 percent. The two-year U.S.
Treasury note <US2YT=RR> was down 2/32, with the yield at
1.9431 percent.
On the foreign exchange market, the dollar was up against a
basket of major trading-partner currencies, with the U.S.
Dollar Index <.DXY> up 0.06 percent at 76.159 from a previous
session close of 76.116.
The euro <EUR=> was down 0.10 percent at $1.4622 from a
previous session close of $1.4637. Against the yen, the dollar
<JPY=> was down 0.31 percent at 106.45 from a previous session
close of 106.78.
The European Central Bank is widely expected to keep
benchmark euro zone interest rates at 4 percent, leaving the
focus on the post-decision news conference by bank President
Jean-Claude Trichet.
Futures markets expect the ECB to cut rates by a half
percentage point by the third quarter FEIU8> but are split on
chances of a further quarter-point easing by year-end.
U.S. corn and soybean prices roared to record highs and
platinum prices peaked as well, justifying bets by investors
seeking recession-proof commodities.
U.S. light sweet crude oil <CLc1> fell $1.19, or 1.35
percent, to $87.22 per barrel after a government report showed
a surprisingly big build in U.S. petroleum stockpiles.
Spot gold prices <XAU=> rose $13.55, or 1.53 percent, to
$900.40.
(Additional reporting by Mike Dolan in London and Vivianne
Rodrigues and Burton Frierson in New York)
