expectations drive dollar up, gold down
By Reuters
Tuesday, December 22, 2009; A15
NEW YORK -- Optimism about the economic recovery Monday encouraged investors to buy stocks and dump U.S. Treasurys, while gold prices fell as investors expected the dollar to remain firm in the beginning of 2010.
Expectations that the U.S. economy is reviving drove the dollar to more than a six-week high against the yen and kept it near its strongest level against the euro in three months.
The price of oil rose on concerns about the security of energy facilities in Iraq and Nigeria, and as cold weather on both sides of the Atlantic increased fuel demand.
The pan-European FTSEurofirst 300 index jumped 1.4 percent to 1,027.87 points, after two consecutive sessions of losses, buoyed by energy shares.
The Dow Jones industrial average rose 119.49 points, or 1.16 percent, to 10,448.38, while the Standard & Poor's 500-stock index gained 14.74 points, or 1.34 percent, to 1117.21. The tech-heavy Nasdaq was up 29.62 points, or 1.34 percent, at 2241.31.
Investors have been cautiously optimistic about retail sales during this holiday season, after higher-than-expected jobs and producer inflation data last week were seen as a sign that the economy is recovering.
"We have an economy that is recovering, and we have a Federal Reserve that says they are going to keep rates lower for longer," said James Caron, co-head of global rates research at Morgan Stanley in New York.
U.S. Treasury debt prices fell, with the 30-year bond down more than a full point as investors looked to riskier assets. Bets that the Federal Reserve will have to raise interest rates in the future caused spreads between yields on two-year and 10-year U.S. Treasury notes to widen sharply on Monday, taking the yield curve to its steepest on record.
The yield spread between those two maturities widened to 280 basis points from 274 basis points last week, according to Reuters data.
Also weighing on Treasurys prices were worries about an expected massive wave of government debt issuance next year. Trade volume was thin at the beginning of a holiday-shortened week, exacerbating price moves, analysts said.
The benchmark 10-year U.S. Treasury note was down 23/32, with the yield at 3.6322 percent, up from 3.54 percent late on Friday. The two-year U.S. Treasury note was down 3/32, with the yield at 0.8395 percent from 0.80 percent.
Higher Treasury yields, coupled with expectations that the U.S. economy might be recovering faster than expected, led the dollar to strengthen 0.71 percent against the Japanese yen, to 90.94. The dollar earlier climbed as high as 91.01 yen, according to Reuters data, the highest level since early November.