* Wall Street pulls back from Monday's euphoric gains
* World stocks hit 5-week high before easing
* Fed details Treasury bond buying plan, 30-yr bond gains
* Dollar rises on hopes U.S. economy will revive
(Updates prices, adds detail, changes byline)
By Steven C. Johnson
NEW YORK, March 24 (Reuters) - Wall Street stocks fell on
Tuesday as enthusiasm about plans to purge the U.S. financial
sector of bad assets faded, while long-dated U.S. government
debt rallied after the Federal Reserve detailed plans to buy
Treasuries.
Second thoughts about the U.S. Treasury's plan to persuade
private firms to help rid banks of up to $1 trillion in toxic
assets increased safe-haven flows into the dollar, as did talk
that euro zone interest rates may have further to fall.
Strength in the dollar put oil and gold on the defensive,
while Wall Street's retreat pulled world stocks off five-week
highs amid concern about whether and when any bank rescue plan
would translate into improved health in the financial sector.
On Monday, when details of the bank rescue plan were
unveiled, U.S. stocks surged about 7 percent, helping lift the
benchmark S&P 500 index more than 20 percent from a bear market
closing low set on March 9. The index remains off nearly 10
percent for the year, however.
"Most traders' expectations coming into today were that
yesterday's upside move, while justified, was a little over
extended," said Michael James, senior trader at investment bank
Wedbush Morgan in Los Angeles.
But he said the market gave up only a fraction of the prior
day's gains, making the price action "very encouraging."
The Dow Jones industrial average <> was down 115.57
points, or 1.49 percent, at 7,660.29. The Standard & Poor's 500
Index <.SPX> was down 16.76 points, or 2.04 percent, at 806.16.
The Nasdaq Composite Index <> was down 38.97 points, or
2.50 percent, at 1,516.80.
Globally, the MSCI World index of stocks <.MIWD00000PUS>
eased slightly on the day but only after rising to its highest
level in more than a month.
In Tokyo, Japan's Nikkei average <> hit a 2-1/2-month
closing high on Tuesday in the spillover of the U.S. plan to
deal with bad assets plaguing the financial sector, while
European <> shares closed slightly higher.
FED DETAILS BOND-BUYING
On the government bond market, long-dated Treasury prices
got a boost when the Fed said it will kick off its Treasury
purchases on Wednesday and target seven- to 10-year notes.
Long-dated Treasuries rallied, with the 30-year bond
<US30YT=RR> rising 21/32, for a yield of 3.6535 percent.
The benchmark 10-year U.S. note <US10YT=RR> was down 14/32,
with the yield at 2.7046 percent. The 2-year U.S. Treasury note
<US2YT=RR> was down 2/32, with the yield at 0.924 percent.
The Fed surprised markets last week when it said it will
buy up to $300 billion of Treasuries over the next six months.
"It was a big deal because it is happening so fast," said
William Larkin, fixed income portfolio manager at Cabot Money
Management in Salem, Massachusetts, adding "it tells you that
(the Fed) is serious -- they are operating on all cylinders,
which is a positive."
On the currency market, dollar gains were helped by
pressure on the euro after policymakers suggested interest
rates in the euro area could fall further. That coincided with
data showing another sharp contraction in manufacturing and
service sector activity.
European Central Bank governing council member Erkki
Liikanen said the central bank has not used up all its "room
for maneuver" on interest rates [].
This followed comments overnight from ECB President
Jean-Claude Trichet, who again said interest rates could be cut
to help kick-start the economy. [].
The news out of Europe contrasted with glimmers of hope in
the United States, where data showed a 1.7 percent rise in home
prices from January from December. This came a day after data
showed sales of previously owned U.S. homes rose at their
fastest pace in nearly six years in February.
Some took it as a sign that the U.S. housing sector, whose
spectacular tumble caused the global financial turmoil, might
be pulling out of its tailspin.
The euro <EUR=> was down 1.3 percent at $1.3459 from a
previous session close of $1.3629. Against the Japanese yen,
the dollar <JPY=> was up 0.9 percent at 97.72 from a previous
session close of 97.02.
"The bloom has come off the euro, in particular, and its
gains had been overextended anyway," said Ken Landon, a
currency strategist at JPMorgan Chase in New York.
In energy and commodities prices, U.S. light sweet crude
fell 25 cents, or 0.46 percent, to $53.55 per barrel, and spot
gold prices <XAU=> fell $12.20, or 1.30 percent, to $924.95.
The Reuters/Jefferies CRB Index <.CRB> was down 0.74
points, or 0.32 percent, at 228.80.
(Additional Reporting by Reuters bureaus worldwide, Editing
by Chizu Nomiyama)
