* U.S. 10-year yield's biggest weekly rise since Aug 2009
* US consumer sentiment hits 6-month high in early December
* Dollar gains, oil and gold prices drop
* Peripheral European sovereign debt spreads widen
(Updates with U.S. markets' close)
By Daniel Bases
NEW YORK, Dec 10 (Reuters) - A rise in U.S. consumer
sentiment in December prompted investors to sell off benchmark
U.S. debt on Friday on expectations the economy will continue
to grow, but U.S. stocks rose modestly on the news.
U.S. data showed consumer sentiment rose more than
expected in early December to the highest level in six months,
according to the Thomson Reuters/University of Michigan
survey, while the government said the country's trade deficit
shrank much more than expected in October.
Early strength in the U.S. dollar, which put downward
pressure on commodity prices, eroded after comments from
European Central Bank President Jean-Claude Trichet supported
the euro.
The dumping of U.S. Treasury debt caps off a week of
relatively aggressive selling that drove the benchmark 10-year
note's yield to a six-month high, and marked its biggest
weekly rise since August 2009.
"Yields are going to remain biased higher, but not in a
straight line," said Kim Rupert, managing director of global
fixed-income analysis at Action Economics in San Francisco.
Rupert also cited the rising U.S. deficit and inflation
fears as well as a more robust outlook for economic growth as
the reasons for the Treasury bond market's losses.
The benchmark U.S. 10-year Treasury note fell 31/32 of a
point in price, driving the yield up to 3.327 percent. The
yield is up 31.5 basis points for the week.
Equity markets scraped their way higher, pushing the S&P
500 to its highest level since the week that Lehman Brothers
collapsed in September 2008. The Nasdaq Composite closed at
nearly a three-year high.
While significant levels were reached, the moves on the
day were muted by a stronger greenback squeezing the operating
margins for U.S. exporters. That fed into the recent inverse
correlation between the currency and U.S. stocks.
Another factor was a decision by China's central bank to
raise lenders' required reserves by 50 basis points while
leaving interest rates on hold. This eased concerns that
aggressive policy tightening could slow China's growth down
too much, but at the same time it did keep investors in
check.
European shares edged up to a fresh 26-month closing
high.
Peripheral European sovereign credit deteriorated on
Friday as prices wax and wane while uncertainty remains over
whether policymakers can put to rest the concerns the debt
crisis is under control.
In the credit markets, the premium that investors demand
to hold peripheral government bonds rather than benchmark
German debt rose on Friday with investors keeping to the
sidelines as the European Central Bank's bond buying slowed
down to a trickle.
The difference between Portuguese and German 10-year
yields widened 18 basis points on the day to 346 basis points
with traders pointing to little buying interest from the ECB.
The equivalent yield spread for Irish debt widened to 540
basis points, out 9 basis points on the day.
The euro <EUR=> fell 0.12 percent to $1.3226. The U.S.
Dollar Index <.DXY>, which measures the dollar against a
basket of major trading partner currencies, gave up early
gains to trade flat, up just 0.04 percent at 80.104. Against
the yen, the greenback rose 0.29 percent to 83.92 yen<JPY=>.
Commodities priced in U.S. dollars weakened on the
currency's gains. Spot gold <XAU=> fell $1.06 to $1,386.20 an
ounce, while January U.S. crude oil futures <CLc1> fell 58
cents to settle at $87.79 a barrel.
S&P 500 STAYS ABOVE 1,228
On Wall Street, the bulls took heart when the S&P 500
managed to hold above 1,228, a closely watched technical
resistance, for the second straight day.
In April and again in early November, the S&P 500 had "met
some significant resistance" when it tried to rise above 1,228
and failed, according to Art Hogan, chief market analyst at
Jefferies & Co in Boston. Both of those failed runs by the S&P
500 to top 1,228 were followed by steep declines.
"So closing above there and staying above there is a
pretty good sign," Hogan said.
The Standard & Poor's 500 Index <.SPX> rose 7.40 points,
or 0.60 percent, to end at 1,240.40 -- its highest close since
mid-September 2008.
The Dow Jones industrial average <> gained 40.26
points, or 0.35 percent, to finish at 11,410.32. The Nasdaq
Composite Index <> climbed 20.87 points, or 0.80 percent,
to close at 2,637.54, its best finish since Dec. 31, 2007.
Industrial shares led the pack, with General Electric
<GE.N> up 3.4 percent at $17.72 after it raised its dividend
for a second time this year.
The pan-European FTSEurofirst 300 index <> of top
shares rose 0.16 percent to 1,125.59, its best close since
September 2008, aided by the U.S. data and led by automakers.
Japan's benchmark Nikkei stock index fell 0.7 percent to
close on Friday at 10,211.95 due to profit-taking. But the
Nikkei was up 0.3 percent for the week.
The MSCI All-Country World stock index <.MIWD00000PUS>
gained just 0.34 percent.
(Reporting and writing by Daniel Bases; Additional reporting
by Chris Reese, Rodrigo Campos, Julie Haviv, Leah Schnurr,
Natsuko Waki, Ellen Freilich and William James; Editing by Jan
Paschal)
