* U.S. bond yields extend surge on deficit worries
* Dollar rises, supported by tax-cuts euphoria
* Gold falls from fresh record peak, oil also down
(Updates with U.S. markets' open, changes byline, dateline,
previous: LONDON)
By Manuela Badawy
NEW YORK, Dec 8 (Reuters) - U.S. stocks wallowed on
Wednesday and the dollar firmed as a spike in Treasury bond
yields following a proposed extension of tax cuts raised growth
expectations for the U.S. economy.
Oil and commodities prices eased from record highs,
pressured by the dollar's rise, while U.S. government bond
prices fell with benchmark yields hovering at their highest in
six months after a deal to extend Bush-era tax-cuts stoked
fears over inflation and the government's control of the budget
deficit.
For the first time in weeks, investors shifted their
attention from euro zone debt concerns onto U.S. economic
fundamentals in a light volume market.
U.S. Treasury prices have fallen by 2 percent in two days
after President Barack Obama proposed extending tax cuts aimed
at supporting economic growth.
"Tax cuts are being perceived as positive for growth,
positive for stocks, certainly outweighing the long-term
negative impact on the U.S. fiscal deficit," said Michael
Woolfolk, senior currency strategist, at BNY Mellon in New
York. "The dollar is therefore benefiting."
Stocks opened slightly higher, but a rise in bond yields
and the dollar limited gains.
The Dow Jones industrial average <> was up 8.78 points,
or 0.08 percent, at 11,367.94. The Standard & Poor's 500 Index
<.SPX> was up 1.59 points, or 0.13 percent, at 1,225.34. The
Nasdaq Composite Index <> was up 4.82 points, or 0.19
percent, at 2,603.31.
The pan-European FTSEurofirst 300 <> index of top
shares rose to a fresh 26-month high at 1,125.38 points as
financial stocks in Europe advanced.
Global stocks measured by MSCI All-Country World Index
<.MIWD00000PUS> fell 0.3 percent.
DOLLAR AND BONDS
Higher government bond yields tend to support the dollar,
as they reflect stronger growth and make some
dollar-denominated assets more attractive to investors. The
dollar was up against a basket of major currencies, with the
U.S. Dollar Index <.DXY> up 0.33 percent at 80.12.
The dollar strength pushed the euro towards important
support levels around $1.3200 as the European bloc comes under
pressure over high debt levels. The euro <EUR=> was down 0.21
percent at $1.3235. Against the Japanese yen, the dollar <JPY=>
was up 0.75 percent at 84.11.
The continued sell-off of U.S. Treasuries raised worries
about demand at a $21 billion sale of 10-year notes later this
session and $13 billion reopening of a 30-year bond issue on
Thursday.
The benchmark 10-year U.S. Treasury note <US10YT=RR> was
down 29/32, with the yield at 3.2493 percent. The 2-year U.S.
Treasury note <US2YT=RR> was down 6/32, with the yield at
0.6196 percent. The 30-year U.S. Treasury bond <US30YT=RR> was
down 14/32, with the yield at 4.4009 percent.
The Treasuries market suffered on Tuesday its worst one-day
sell-off in 18 months.
The rise in U.S. borrowing costs gave the dollar an edge
over the euro among yield-hungry investors, thereby also
delivering a blow to gold, which has shed 2.5 percent since
hitting a record high on Tuesday, as its investment appeal
diminishes with a rise in interest rates.
Spot gold prices <XAU=> fell $25.84, or 1.84 percent, to
$1375.50 an ounce, while U.S. light sweet crude oil <CLc1> fell
93 cents, or 1.05 percent, to $87.76 per barrel after industry
data showed a rise in inventories.
(Additional reporting by Gertrude Chavez-Dreyfuss, Richard
Leong in New York and Amanda Cooper in London, Editing by Chizu
Nomiyama)
