* U.S. stocks fall on profit-taking but rise in Europe
* Dollar at 3-week high vs euro on hopes for stimulus plan
* Oil gains as Gaza fighting raises Mideast supply worries
* Debt prices fall as Germany, U.S. eye large tax cuts
(Recasts with U.S. markets, changes byline, dateline; previous
LONDON)
By Herbert Lash
NEW YORK, Jan 5 (Reuters) - News about a planned U.S.
stimulus package helped pull investors into the dollar on
Monday but U.S. Treasury prices slumped on fears a price bubble
is about to pop in the face of a massive wave of fresh debt.
European equities advanced for the fifth session in a row,
spurred by gains in shares of oil companies on the back of
rising crude prices. U.S. stocks were mostly lower as investors
took profits on the rally that was racked up in thin trading
last week.
Oil prices hit a three-week high as Israel's deepening
incursion into Gaza and a Russian gas dispute heightened fears
about supplies.
Prospects for a swelling supply of government debt drove
U.S. and euro-zone prices down. The U.S. Treasury said it would
sell $16 billion of reopened 10-year notes and $30 billion in
three-year notes this week.
While the issuance was broadly in line with market
forecasts, it underscored this year's looming surge of debt
that will to fund government efforts to rescue the financial
system.
U.S. President-elect Barack Obama plans $310 billion in tax
cuts as part of a rescue package of up to $775 billion, senior
Democratic aides said Sunday. German Chancellor Angela Merkel
met her Social Democrat (SPD) coalition partners to discuss a
second fiscal stimulus deal worth up to 50 billion euros ($68
billion).
The 30-year Treasury bond <US30YT=RR> fell nearly three
full points in price, pushing its yield up to 2.92 percent, up
from a record low near 2.52 percent in December.
"The back-up in yields shows a growing sentiment toward
questioning the lower rate environment we are in right now,"
said George Goncalves, chief Treasury/TIPS and agency
strategist with Morgan Stanley in New York.
The euro hit three-week lows versus the dollar, with
weaker-than-expected Italian and Spanish inflation data and tax
cuts in Germany expected to pressure the European Central Bank
to soon cut rates further.
U.S. stocks fell as investors took profits following last
week's sharp gains.
"Right now we're just watching and waiting to see if there
is any news from the new administration and what type of news
it will be," said Frank Lesh, a futures analyst and broker at
FuturePath Trading LLC in Chicago. "We got a little bit of
profit taking here," he added.
Shares of Apple Inc <AAPL.O> rose after chief executive
Steve Jobs wrote a letter aimed at dispelling investor concerns
about his recent weight loss. Shares of the iPod maker rose 4.4
percent to $94.75 in early afternoon trade.
Before 1 p.m., the Dow Jones industrial average <> was
down 79.09 points, or 0.88 percent, at 8,955.60. The Standard &
Poor's 500 Index <.SPX> was down 3.27 points, or 0.35 percent,
at 928.53. The Nasdaq Composite Index <> was down 8.52
points, or 0.52 percent, at 1,623.69.
European equity markets were buoyed by the anticipation of
further fiscal stimulus, drawing flows away from the
safer-haven of government bonds.
The FTSEurofirst 300 <> index of top European shares
ended 1.9 percent higher at 873.01 points.
The telecommunications sector was one of the biggest
gainers on the index on the first full day of 2009 trading for
many, with Swisscom <SCMN.VX> rising 5.2 percent, Cable and
Wireless <CW.L> adding 4.6 percent, Vodafone <VOD.L> up 4.3
percent and Portugal Telecom <PTC.LS> rising 4.6 percent.
Sharp losses for the euro, which was down 2.28 percent at
$1.3559, also spread to euro/sterling, taking it to 0.9278,
well away from record lows for the pound last week and easing
momentum towards parity.
The dollar rose against a basket of major trading-partner
currencies, with the U.S. Dollar Index <.DXY> up 1.74 percent
at 82.923. Against the yen, the dollar <JPY=> rose 1.31 percent
at 93.43 from a previous session close of 92.220.
Longer maturity government debt fell, but shorter-term debt
was little changed to higher. The benchmark 10-year U.S.
Treasury note <US10YT=RR> fell 34/32 in price to yield 2.47
percent, and the 30-year U.S. Treasury bond <US30YT=RR> fell
102/32 in price to yield 2.94 percent.
Oil rose, and has gained more than 35 percent since Israel
launched its attack on Gaza on Dec. 27, increasing concerns
about the supply of crude from the Middle East.
U.S. light sweet crude oil <CLc1> rose $1.11 to $47.45 a
barrel.
U.S. gold futures dropped, breaking below $850 an ounce, as
investors took profits on the back of a dollar rally and signs
of slowing physical demand.
Spot gold prices <XAU=> fell $22.45 to $852.60 an ounce.
Asian stocks rose to a two-month high on hopes massive
government spending programs will revive a global economic
recovery later this year.
The MSCI index of Asia-Pacific stocks outside Japan
<.MIAPJ0000PUS> climbed 1.6 percent to a two-month peak, while
Japan's Nikkei average <> gained 2.1 percent in a
shortened session to reach a two-month high.
(Reporting by Gertrude Chavez-Dreyfuss, John Parry in New York
and Kirsten Donovan, Kylie MacLellan and David Sheppard in
London; writing by Herbert Lash; Editing by Tom Hals)
