Treasury bond yields fell sharply Tuesday, declining for the first time in six sessions despite a lack of fresh economic news to guide the rally. The yield on the benchmark bond tumbled to 6.31% from 6.38% on Monday.
The stock market snapped a four-day losing streak and followed bonds higher. The Dow Jones industrial average gained 3.92 points to 3,674.17.
The bond rally was aided by a surprise decision by the Bank of England to lower its minimum interest rate by half a point to 5.5%.
The price of the U.S. Treasury's main 30-year bond spurted 1 1/32 points, or $10.31 per $1,000 in face value. Shorter-term maturities also posted significant gains in prices and declines in yields.
The sharp recovery in bond prices--which move in opposite direction from yields--allayed some concerns that the credit markets are headed for a prolonged slump following the sharp plunge in prices since mid-October.
A recent string of economic reports has made market participants increasingly concerned that the economy is growing faster and could aggravate inflation, which tends to erode the value of fixed-income securities.
But analysts cautioned that sentiment is likely to remain bearish, with room for further price declines, until new economic reports start to ease worries about rising inflation.
They traced much of the day's price jump to speculators who had placed bets in recent sessions that the market would decline further. These short sellers bought bonds to complete those deals when it appeared Tuesday that prices had finished falling for now.
Adding to the positive backdrop was decent demand at the Treasury auction of five-year notes. The Treasury sold $11 billion in the notes at a high yield of 5.20%, roughly in line with expectations.
The market rebound "goes to show the market is not finished yet, despite all the doom-and-gloomy predictions of last week. The market isn't finished yet," said Anthony Karydakis, senior financial economist at First Chicago Capital Markets.
However, he said, "It's way too early to say whether today's bounce represents the beginning of a turnaround."
The gain in stocks represented a temporary respite from fears that rising interest rates linked to a weak bond market would cause further stock declines. It also reflected what analysts called a historical pre-Thanksgiving fondness for buying.
"This is a technical rally, mainly coming on the strength of the bond market, and due also to the stock market's oversold condition and coming into a holiday season that's typically strong. It's not a big rally," said Ricky Harrington, senior vice president of Interstate-Johnson Lane in Charlotte, N.C.
Advancing issues led declines 1,154 to 905. Volume on the New York Stock Exchange was moderate at 259 million shares.
The Nasdaq index halted a six-session losing streak, ending up 8.69 points to 746.82, buoyed by gains in technology and telecommunications stocks.
Among the market highlights:
Utility stocks, which are sensitive to interest rate increases, all gained, as did banks, which have benefited from the low rates of the summer months. Among financial stocks, Federal National Mortgage gained 7/8 to 74 3/4 and Citicorp added 1 1/8 to 35. Utilities Niagara Mohawk gained 5/8 to 20 5/8 and Peoples Energy rose 5/8 to 28 1/4.
AMR was down 3 1/2 to 65 1/8 as the parent of American Airlines moved to restore full service after the strike by flight attendants. Bear Stearns & Co. downgraded the stock Tuesday morning. Most other transportation issues were also down. UAL fell 2 1/2 to 136 1/2 as unions for pilots and ground crews at its United Airlines unit ordered a work slowdown that could delay Thanksgiving travel.
Technology issues rebounded after weeks of decline. Intel gained 1 3/8 to 58 7/8. IBM was up 1 1/8 to 53 1/8, while Microsoft gained 3/8 to 77 3/8 and Cisco Systems added 1 to 56 3/4.
Circus Circus rose 1 to 32 5/8 after it reached an agreement to develop and operate a riverboat casino 20 minutes east of the New Orleans central business district.
Paramount Communications fell 2 3/4 to 76 1/4 over its removal from the Standard & Poor's 500-stock index.
Vermont Teddy Bear Co. closed at 16 3/4 on its first trading day, up from an initial public offering priced at $10 earlier Tuesday.
Overseas, London's Financial Times 100 index of leading stocks slipped 1.3 points to close at 3,069.3, after reaching 3,090.1 earlier. Frankfurt's DAX 30-share index ended down 2.59 points at 2,027.41. The Tokyo stock market was closed for a holiday and will reopen today.
The dollar rose against the yen and most other currencies in quiet trading ahead of a key Treasury report on international economics, released late in the day.
The dollar ran up against the yen, hitting a high of 109.20 yen, on speculation U.S. officials were reassessing a perceived strong yen policy.
The Treasury, however, made no specific mention of the yen in its semiannual report to Congress, which was released after the market closed.
Instead, it voiced dissatisfaction with the slow pace of global economic growth and urged Japan and Europe to take action to fire up consumer demand.
Gold bullion fell $1.20 to $377.30 an ounce for the most-active December contract on New York's Commodity Exchange.
Market Roundup, D10