(Adds bond data in paragraphs 11, 12)
By Herbert Lash
NEW YORK, March 25 (Reuters) - U.S. Treasury debt prices
rose and the dollar slipped on Tuesday as data showing another
slide in U.S. home prices along with a plunge in consumer
confidence to five-year lows renewed the flight to safe-haven
investments.
Gold finished nearly 2 percent higher, rebounding from a
recent sharp decline, as funds poured into commodities after
the dollar slumped broadly on the weak U.S. economic data.
Oil prices rose slightly to snap three days of losses, on
the dollar weakness and fresh output disruptions in Africa
spurred buying.
In the stock market, the Dow fell as a rise in shares of
miners and other commodities-based companies was offset by a
drop in financial shares after a rating downgrade of Bank of
America Corp <BAC.N>, on expected fallout from the bursting
housing bubble, took a toll. But the Nasdaq and S&P 500 rose.
In Europe, stocks closed higher as Nokia, the world's top
cell phone maker, said it had not felt much impact from the
U.S. economic slowdown, as markets reopened after a four-day
holiday weekend. Banks posted strong gains in an echo of
Monday's Wall Street sentiment as JPMorgan's sweetened bid for
investment bank Bear Stearns reduced fears of a collapse in the
financial sector.
"Commodities are up today and that's kind of easing fears
of a commodity blow-up," said Cleveland Rueckert, an analyst
with Birinyi Associates Inc in Stamford, Connecticut. "A lot of
the bad news is now priced into the market and people are
starting look further down the road."
In New York, the rise in the price of gold and other metals
drove up shares of aluminum producer Alcoa Inc <AA.N> about 2
percent and shares of Freeport-McMoran Copper & Gold Inc
<FCX.N> about 4 percent.
But two reports on Tuesday showing further drops in U.S.
home prices renewed concerns about the U.S. consumer and the
economy's slowdown. The bearish data helped revive U.S.
Treasury debt prices.
Another report showed U.S. consumer confidence in March
fell to a five-year low, adding to the sense that while much
has been done to ease a credit crunch that has slammed
financial markets, the outlook on Main Street is worsening.
The Dow Jones industrial average <> was down 16.04
points, or 0.13 percent, at 12,532.60. The Standard & Poor's
500 Index <.SPX> was up 3.11 points, or 0.23 percent, at
1,352.99. The Nasdaq Composite Index <> was up 14.30
points, or 0.61 percent, at 2,341.05.
Gains in the U.S. debt market erased only a small portion
of the previous day's steep losses, when U.S. equity markets
rallied sharply.
Benchmark 10-year Treasury notes <US10YT=RR> traded 12/32
higher in price for a yield of 3.51 percent from 3.56 percent
late on Monday, while 2-year notes <US2YT=RR> traded 2/32
higher in price for a yield of 1.78 percent from 1.82 percent.
DOLLAR WEAKENS AGAINST EURO
The dollar posted its steepest loss against the euro since
March 12.
"The credit contraction is not over," said Axel Merk,
portfolio manager of the $300 million Merk Hard Currency Fund
in Palo Alto, California. "What the Federal Reserve has done is
stabilize the financial system, which was necessary, but that
doesn't mean that the U.S. economy will go back to growth."
The euro climbed to a session peak $1.5618 <EUR=>. In late
New York trade, it was up 1.2 percent on the day at $1.5609,
posting its biggest one-day rise since March 12, according to
Reuters data.
Against the yen, the dollar slid to an intraday trough of
99.640 yen <JPY=> and erased earlier gains above 101 yen. It
was last trading at 100.20 yen, down 0.5 percent.
A record drop in home values in January weighed on investor
sentiment as U.S. consumer confidence plunged on worries over
rising inflation and fewer jobs.
Prices of existing U.S. single-family homes slumped by
about 11 percent in January from the same period a year ago,
according to two closely watched Standard & Poor's/Case-Shiller
gauges.
A separate report by the Conference Board showed consumer
confidence slid and expectations for the future were at a
34-year low in March.
SENTIMENT SEEN TURNING SOUR
Gold <XAU=> touched a low of $911.50 an ounce on Tuesday
before hitting a high of $936.50.
U.S. oil prices settled up 36 cents at $101.22 but remained
sharply below the record high of $111.80 touched on March 17.
Traders have been reluctant to let the price fall back below
$100 a barrel.
"Sentiment is likely to turn sour again and the latest U.S.
consumer confidence data is not encouraging news," said Harry
Tchilinguirian, an analyst at BNP Paribas.
Equity markets in Europe and Asia were driven by Monday's
report of a surprising rise in sales of U.S. pre-owned homes
last month. Some investors took this as a sign that the worst
may be over for the U.S. housing sector. The sweetened bid for
Bear Stearns also lent support.
"It gives people hope that maybe the darkest period is
over," said Hans Kunnen, head of investment markets research at
Colonial First State in Sydney. "But the market is just
operating like a yo-yo within a band."
European financial companies held center stage for most of
the day in the wake of U.S. stocks' solid gains on Monday.
Shares of HBOS <HBOS.L>, Britain's biggest mortgage lender,
rose almost 15 percent, while Royal Bank of Scotland <RBS.L>
added over 9 percent and UBS <UBSN.VX> climbed more than 8
percent.
Nokia advanced 8.2 percent and chipmaker Infineon
<IFXGn.DE>, an important supplier to Nokia, rose 10.5 percent.
The FTSEurofirst 300 index <> of top European shares
closed 3.2 percent higher at 1,266.03 points, paring losses so
far this year to 16 percent.
The equity gains pushed euro zone government debt sharply
lower as yields jumped, with the two-year posting its biggest
one-day gain in over five years.
Asian shares jumped following the U.S. stock surge on
Monday, and Japanese government bond futures retreated from
last week's five-year highs amid tentative hopes the United
States would weather the credit crisis.
MSCI's index of Asia shares outside of Japan <.MSCIAPJ>
added 4.26 percent, the biggest daily gain since late January.
Japan's Nikkei index <> closed up 2.1 percent as
exporters gained as the yen traded well below last week's near
13-year high against the dollar, easing earnings concerns.
(Additional reporting by Gertrude Chavez-Dreyfuss, Justin
Grant and Ellen Freilich in New York and Maryelle Demongeot and
Atul Prakash in London; Editing by Leslie Adler)
