BOND REPORT: Treasurys Gain After Confidence, Home Sales Data

Short-term Treasurys rose modestly Tuesday after reports showed new and existing home sales slowed in November.

Two-year note yields (UST2YR) fell 2 basis points, or 0.02,% to 0.89%. Bond yields move inversely to prices.

Ten-year yields (UST10Y) were little changed at 2.17%, after being higher earlier.

New home sales fell 2.9% to seasonally-adjusted annual rate of 407,000 units, the lowest level in more than 17 years and close to the pace expected by economists surveyed by MarketWatch.

Existing home sales, which make up the bulk of the market, declined almost 9% to 4.49 million pace, worse than the 4.90 million rate predicted.

Traders said overnight volume was low as Japanese bond markets were closed. The Securities Industry and Financial Markets Association recommends that trading end early Wednesday and remain closed Thursday in observance of Christmas.

"Not only do we have fewer people willing to play and there is some risk of exaggerated year end moves on limited flows," said David Ader, U.S. government bond strategist at RBS Greenwich Capital.

Separately, the University of Michigan/Reuters consumer sentiment report showed confidence was slightly better than expected this month.

Low-yielding auctions

Debt maturing in more than five years was, in part, under pressure from the Treasury Department's auction of a record $28 billion in five-year notes.

The government sold the debt at a yield of 1.539%.

Bidders offered $2.06 for every dollar being sold, the lowest since September.

The current five-year note yield (UST5YR) was little changed at 1.43%.

On Monday, the government auctioned $38 billion in two-year notes, the biggest sale ever, with the yield coming in below 1% -- the lowest ever.

The Treasury Department also sold $22 billion in four-week bills (UST1MO) at a yield of 0% on Tuesday, as investors still seem keen on the safety of short-term government debt.

It's the third auction of four-week bills in December at which investors have asked for no yield, but just to get their principal back. Bidders offered more than 4.41 times the amount of debt being sold, indicating more demand than in the last two auctions that came at a 0% yield.

Short-term Treasurys remained bid after the Commerce Department confirmed that the U.S. economy contracted at a 0.5% annual rate in the third quarter. The gross domestic product figure was the final revision for the three months ended in September and in line with expectations of economists surveyed by MarketWatch.

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MARKET SNAPSHOT: Dow Tallies Fifth Straight Loss As Autos, GDP Weigh

U.S. stocks declined on Tuesday for a second session this week as worries intensified that federal funds might not salvage the auto industry, and economic reports illustrated the economy's decline and ongoing trouble in the housing market.

"Buyers haven't put on their Santa Claus hats just yet. Historically there is a positive bias for the market during the last week of the year. However, 2008 is anything but normal," said Michael Sheldon, chief market strategist at RDM Financial Group.

After falling in the last four sessions, the Dow Jones Industrial Average ( DJI) turned tail on earlier gains to extend its losing streak. The blue-chip index finished at 8,419.49, off 100.28 points, or 1.2%.

Just five of the blue-chip index's 30 components finished in the black, led by Alcoa Inc. (AA), up 3.7% for the session.

Shares of General Motors Corp. (GM) and Ford Motor Co. (F) were each down about 15% after both automakers drew downgrades from two major ratings agencies after Monday's close. Standard & Poor's said the risk of bankruptcy remains high, regardless of government loans. .

"The end-of-year rally, Santa Claus rally -- or whatever you want to label it as -- was cut short last week. A lot of that had to with the fact we're still seeing turmoil in the auto sector," said Peter Cardillo, chief market economist at Avalon Partners. Listen to more.

On Capitol Hill, Vice President-elect Joseph Biden said Barack Obama's transition team is still negotiating the details of its economic-stimulus plan with Congress, with a deal not yet complete. .

"If the stimulus plan is as big and bold and timely as we hope it will be, it could change the playing field for equity markets and the outlook for the economy as we go through the next year," according to Sheldon.

The S&P 500 Index (SPX) shed 8.48 points, or 1%, to stand at 863.15.

Consumer discretionary, utilities and information technology fronted the sector losses among the S&P's 10 industry groups, with telecommunication services and health care hit the least.

Bucking the negative trend among financial shares, ProLogis (PLD) gained 10.3% after the real-estate investment trust said it's selling its operations in China and property-fund interests in Japan to GIC Real Estate for $1.3 billion, plus assumed liabilities. .

Shares of CIT Group Inc. (CIT) gained 1.9% after the commercial-finance company said it entered into definitive agreements with the U.S. Treasury Department to tap $2.33 billion in Troubled Assets Relief Program funds.

The Nasdaq Composite Index (RIXF) lapsed 10.81 points, or 0.7%, to 1,521.54. .

Trading volume was thin, as expected for the holiday-shortened week. On the New York Stock Exchange, almost 985 million shares traded, with decliners passing advancers 3 to 2. On the Nasdaq, nearly 500 million shares traded and decliners topped advancers 9 to 5.

Oil moves

Crude futures fell, furthering a 6% slump in the previous session, as gloomy economic news fueled worries of weaker energy demand. The contract for February delivery fell 93 cents to close at $38.98 a barrel on the New York Mercantile Exchange. .

Gold futures also fell, with the spot month closing down $9.1 to finish at $ 838.10 an ounce. .

"U.S. consumers trimmed their spending instead of their trees in the week before Christmas, while GM stock and bond investors are apparently better that the company will not make it despite its recent injection of loan money," Jon Nadler, senior analyst, Kitco Bullion Dealers Montreal, wrote in an afternoon note.

The U.S. dollar gained, with the dollar index (DXY) at 81.31 from 81.227 in late North American trading Monday. .

Short-term Treasury prices rose modestly after reports showing sales of new and existing homes slowed in November, with the 2-year note yields (UST2YR) off 2 basis points, or 0.02%, to 0.89%. .

U.S. real GDP for the third quarter fell at a 0.5% annualized rate, unrevised from the prior estimate, the Commerce Department said. The contraction was in line with economists' expectations.

The indexes had added to earlier gains after two separate reports on the troubled housing market. But they later turned lower.

The Commerce Department estimated the sale of new homes fell to more than 17- year lows in November. .

A separate report had the sales of existing homes falling 8.6% last month, with home prices falling at their most rapid annual pace on record.

Consumer sentiment improved in December, rebounding from multidecade lows, according to a survey released by Reuters and the University of Michigan.

Active issues

Shares of Textron Inc. (TXT) lapsed 20.5% after the company lowered its adjusted fourth-quarter earnings outlook late Monday and said it would trim about 5% of its global workforce.

Discussions between Walt Disney Co. (DIS) and Hong Kong officials are under way over the possible expansion of Hong Kong Disneyland, which may include adding attractions that would be unique to the Hong Kong venue, The Wall Street Journal reported.

Also in the headlines, General Dynamics Corp. (GD) said late Monday its Electric Boat unit and Northrop Grumman Shipbuilding, a unit of Northrop Grumman Corp. (NOC), received a $14 billion contract from the U.S. Navy to build eight Virginia-class submarines.

Unisys Corp. (UIS), trading as a penny stock, advanced 45.3% after its announcement late Monday that it would act to reduce costs, including laying off about 1,300 workers.

Asian markets dropped sharply Tuesday in thin trading as investors rushed to take profits ahead of the holidays. European markets advanced.

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LATIN AMERICAN MARKETS: Mexico Advances With Help From Cemex; Brazil Slumps

Mexican stocks outperformed other Latin American equities Tuesday, with help from cement maker Cemex SA on news that its debt-refinancing troubles are easing.

Mexico's IPC index rose 0.5% to 22,174.26, nearly winning back the 0.7% that it lost in the previous session.

Shares of Cemex (CX) jumped 5% following the company's announcement that its lenders have agreed to plans to refinance $2.2 billion in loans due next year and in early 2010. It also received an extension of $1.5 billion of a $3 billion syndicated-loan facility due next year.

The company, which is the biggest provider of ready-mix cement to the United States, said it is still in talks about remaining short-term debt. Cemex has about $6 billion in debt due in 2009.

Elsewhere in Mexico, shares of telecom-services provider Axtel rose 6% to lead overall advancers. Volume leader America Movil (AMX) reversed gains and slipped 0.3% and fixed-line operator Telmex (TMX) rose 0.9%.

Decliners included Urbi Desarrollos Urbanos. The home builder's shares fell 2.8%. Copper miner Grupo Mexico lost 0.6% and electronics retailer Grupo Elektra fell 1%.

Brazil steel stocks hit

In Brazil, the Bovespa fell 3.1% to 36,470.78. The loss was exaggerated by lower volume than usual ahead of the market's closure on Wednesday and Thursday, in observance of Christmas Eve and Christmas.

Petrobras (PBR) shares gave up earlier gains, closing down 0.6%. The oil giant said late Monday that it has refinanced its loans with Banco do Brasil and Caixa Economica Federal.

Losses among steel stocks accelerated during the session along with the broader market. An industry report showed that November crude-steel output from Brazil fell 19% to 2.324 million metric tons from the year-ago period, hurt by lower demand after steel consumers such as automakers shut down their plants.

Gerdau shares (GGB) lost 3.3% The steel firm has purchased an additional 20% stake in Spain's Corporacion Sidenor SA for 206 million euros.

Usiminas lost 6.8%, and CSN (SID) fell 3.8%.

Shares of Companhia Vale do Rio Doce (RIO), the world's largest provider of iron ore (a key component for steel production) dropped 3.7%, extending their 4.4% decline on Monday.

BMO Capital Markets, in an update for its outlook for iron-ore and metallurgical-coal prices through 2013, forecast iron-ore prices will fall 25.6% to $67 a metric ton in 2009. Metallurgical-coal prices are expected to "plunge" 60.7% to $120 a metric ton next year.

Bart Melek, global commodity strategist at BMO, wrote in research note entitled "From Feast to Famine in Record Time" that prices and demand should erode "quite sharply" in 2009. That's a reversal from conditions faced by iron- ore producers for much of this year, when tight supply-demand conditions helped drive record-high prices for bulk commodities used in steelmaking.

But aggressive interest-rate cuts by G7 central banks and China's central bank, along with stimulus packages are expected to help the global economy recover in the second half of 2009, Melek said. That would help steel-smelting rates, and eventually lift demand for iron and metallurgical coal by 2.6% and 2% , respectively.

Separately, Moody's said Tuesday that its outlook for the U.S. steel industry is negative over the next 12 months to 18 months. "Demand is expected to stabilize but remain weak in 2009," said Carol Cowan, Moody's vice president and senior credit officer, in a statement.

"However, there may be some very modest improvement from currently depressed levels toward the end of the year, should government-stabilization programs take hold," she added.

Shares of Brasil Telecom (BRP), meanwhile, rose 4.5%. Its purchase by rival Tele Norte Leste Participacoes (TNE) was approved last week. Tele Norte, or Oi, finished the session 2.5% higher.

Wireless provider Vivo (VIV) sharply pared gains, ending up 0.2%.

Brazilian airlines turned mixed. TAM (TAM) picked up 0.5% while Gol (GOL) shares slid 8.2%.

Chile's IPSA index turned slightly higher, up 2 points to 2,337.34.

Shares of Distribucion y Servicio were fractionally lower a day after they jumped 28% on news that retailing giant Wal-Mart Stores Inc. (WMT) plans to purchase the Chilean grocer.

Argentina's Merval lost grip of gains. The benchmark fell 0.6%.

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ASIA MARKETS: Toyota, Bridgestone Pace Tokyo's Decline

Japanese stocks dropped sharply Wednesday as trading resumed after a one- day holiday, with Toyota Motor Corp. sliding over the auto giant's earlier forecast for its first operating loss since the Second World War, while Bridgestone Corp. added to the selling pressure after slashing its profit outlook.

The Nikkei 225 Average fell 2.4% to 8,514.24, while the broader Topix index fell 2.4% to 828.54.

South Korean shares also declined, with the benchmark Kospi losing 2.6% to 1, 114.48 in Seoul.

The decline came in the wake of extended losses on Wall Street and weak economic and housing data from the U.S. overnight.

Australian shares advanced however, bouncing back from declines in the previous two sessions, with the S&P/ASX 200 index rising 0.9% to 3,564.10 in Sydney.

New Zealand's NZX 50 index added 0.4% to 2,672.91.

Taiwan's Taiex fell 1.7% to 4,329.97, and Singapore's Straits Times Index slipped 0.7% to 1,713.02 in early trading.

Toyota (TM) stock fell 4.2% in Tokyo, after the company said Monday it expects a group operating loss of 150 billion yen ($1.7 billion) for the fiscal year ending March 31, compared to a 2.27 trillion yen profit a year earlier.

The company also cut its net income projection to 50 billion yen, 91% down from its earlier estimate, in addition to lowering its unit-sales target to 7.54 million vehicles from 8.24 million units.

Shares of Bridgestone (BRDCY) dropped 5.1%, after the tire maker cut its net income forecast for 2008 to 12 billion yen from 66 billion yen on dropping sales, a strong yen and a write-down of some U.S. assets.

In Seoul, Hyundai Motor Co. (HYMLF) dropped 6.5%, and Kia Motors Corp. (KIMTF) lost 6.9%, on top of their double-digit percentage declines in the previous session, after they also cut their sales forecast earlier this week.

National Australia Bank (NABZY) shares gained 0.7% after the banking major said discussions to purchase Wizard's brand name, distribution network and prime mortgages had ended, as its offer wasn't accepted.

Shares of Commonwealth Bank of Australia (CBA.AU), however, fell 0.9% after the bank said it will acquire up to A$4 billion of home loans originated by Wizard.

In Asian currency trading, the U.S. dollar changed hands for 90.52 yen, compared with 90.57 yen Tuesday.

February crude-oil futures rose 56 cents to $39.54 a barrel in electronic trading, after falling 93 cents to $38.98 a barrel on the New York Mercantile Exchange.

Overnight on Wall Street, the Dow Jones Industrial Average (DJI) fell 1.2% to 8,419.49, and the S&P 500 Index (SPX) gave up 1% to 863.16, while the Nasdaq Composite (RIXF) shed 0.7% to 1,521.54.

The decline came after data showed the U.S. economy contracted at a 0.5% annual rate in the third quarter, unrevised from last month's preliminary estimate.

Data also showed re-sales of U.S. single-family homes and condos fell a greater-than-expected 8.6% in November to a seasonally-adjusted annual rate of 4.49 million, even as home prices dropped at the fastest annual pace on record.

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