* Debt prices slump as U.S., Germany eye large tax cuts
* U.S. stocks fall on profit-taking; stocks rise in Europe
* Dollar at 3-week high vs euro on hopes for stimulus plan
* Oil jumps as Gaza fighting raises Mideast supply worries
(Adds close of U.S. markets)
By Herbert Lash
NEW YORK, Jan 5 (Reuters) - U.S. Treasury prices plummeted
on Monday, driven by fears a price bubble is about to pop in
the face of a massive wave of new debt, while fresh details of
a planned U.S. stimulus package helped firm up the dollar.
U.S. stocks fell after an early rally on
better-than-expected December sales at battered General Motors
failed to hold as investors booked profits from last week's
run-up.
Oil prices rose more than 5 percent as Israel's deepening
incursion into Gaza and a dispute between Russia and Ukraine
over natural gas heightened worries of supply disruptions.
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 a looming surge of debt 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 on 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 more than four
full points in price, pushing its yield above 3 percent, a
dramatic rise from a record low near 2.52 percent on Dec. 18.
But the dollar rose, with not all investors taking such a
dim view as the bond market's. The euro slipped to 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 cut rates further soon.
"The combination of tax cuts, infrastructure spending and
job creation under the Obama stimulus package takes out some of
the pain from the economic recession we're in," said Ron
Simpson, director of currency research at Action Economics in
Tampa, Florida.
"At some juncture the U.S. efforts would turn the economy
around quicker than many of the other countries and that should
be dollar-positive," he added.
After toying with positive territory through much of the
session and briefly rallying on GM's sales, U.S. stocks ended
lower, though GM's shares rose 1.6 percent.
The Dow Jones industrial average <> closed down 81.80
points, or 0.91 percent, at 8,952.89. The Standard & Poor's 500
Index <.SPX> fell 4.34 points, or 0.47 percent, at 927.46. The
Nasdaq Composite Index <> slipped 4.18 points, or 0.26
percent, at 1,628.03.
Dow components Verizon Communications Inc <VZ.N> and AT&T
<T.N> slid on a research downgrade, and financial stocks fell
after Deutsche Bank cut its earnings forecast on 16 large
banks, including JPMorgan Chase & Co <JPM.N>.
Verizon fell 6.2 percent, AT&T slid 3.4 percent and
JPMorgan shed 6.6 percent.
Shares of Apple Inc <AAPL.O> rose after Chief Executive
Steve Jobs dispelled investor concerns about his recent weight
loss, saying it was a treatable hormone-related problem. Apple
shares rose 4.2 percent.
European equities advanced for the fifth straight session,
spurred by gains in shares of oil companies on rising crude
prices and by the anticipation of further fiscal stimulus,
drawing flows away from safer-haven government debt.
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 off 2.14 percent at
$1.3579, also spread to euro/sterling, taking it to 0.9278,
well away from record lows for the pound last week and easing
momentum toward parity.
The dollar rose against a basket of major trading-partner
currencies, with the U.S. Dollar Index <.DXY> up 1.59 percent
at 82.80. Against the yen, the dollar <JPY=> rose 1.23 percent
to 93.35.
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 35/32 in price to yield 2.48
percent, and the 30-year U.S. Treasury bond <US30YT=RR> fell
156/32 in price to yield 3.01 percent.
Oil, up more than 35 percent since Israel launched its
attack on Gaza on Dec. 27, rose on increasing concerns about
the supply of crude from the Middle East.
U.S. crude <CLc1> gained $2.47 to settle at $48.81 a barrel
after touching a three-week high of $49.28. London Brent
<LCOc1> rose $2.40 to $49.31 a barrel.
"Saber rattling by Iran and further instability in the
Middle East always produces fears for oil supplies, which is
putting a platform under prices," said Bank of Ireland analyst
Paul Harris.
Gold tumbled, briefly breaking below $850 an ounce as
investors took profits on the dollar rally and signs of slowing
physical demand in India, the world's top bullion consumer.
U.S. gold for February delivery <GCG9> settled down $21.70
to $857.80 an ounce in New York.
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 2.7 percent, while Japan's Nikkei
average <> gained 2.1 percent in a shortened session to
reach a two-month high.
(Reporting by Richard Valdmanis, Gertrude Chavez-Dreyfuss,
Chuck Mikolajczak, John Parry and Frank Tang in New York and
Kirsten Donovan and Kylie MacLellan in London; writing by
Herbert Lash; editing by Dan Grebler)
