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Stocks Waver Ahead of Bond Auction; BofA Rises

CNBC.com
Thursday, 9 Dec 2010 | 12:37 PM ET

Stocks traded mixed Thursday as Treasurys erased most of their gains ahead of a 30-year bond auction and despite evidence the U.S. economy continues to improve.

The Dow Jones Industrial Average fell more than 25 points a day after ending slightly higherin a session dominated by moves in Treasurys and metals.

DuPont , Travelers and IBM fell, while Bank of America and Verizon rose.

The S&P 500 and Nasdaq were trading flat. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell below 18.

Among key S&P 500 sectors, energy, technology, and consumer discretionary fell, and telecom and financials rose.

The dollar weakened versus the euroas the rating agency Fitch cut ratings for Ireland's sovereign debt, and an political party in Ireland said it would vote against a European Union bailout for the country. Prices for gold and silver recovered some of the gains lost Wednesday in the wake of rising Treasury yields and a rising dollar.

Markets have wobbled over the past several days, while investors have ditched bonds amid concerns over whether a recent tax deal in Washington would threaten financial stability and spark inflation.

After their worst two-day selloff in two years, Treasurys continued to weaken ahead of a 1 p.m. $13 billion auction in 30-year bonds by the U.S. Treasury. The 30-year Treasury bond slipped 1.4 percent, to yield 4.4 percent, while the 10-year note 2.2 percent to yield 3.2 percent.

Bond investors have been concerned about an agreement between President Obama and Republicans to extend the Bush-era tax cuts for a further two years.

The markets largely remained quiet as the drop in jobless claims, while more than expected, was still largely in line with trends in the weekly indicator, said Kevin Kruszenski, head of listed trading at KeyBanc Capital Markets in Cleveland.

The markets were also awaiting direction from Washington about the tax cut plan as Congress continued to wrestle over the details, although Kruszenski said most seem to expect a compromise will be reached. If it's not, "it could be a market moving event," he said.

Financials got a boost from Barclay's, which upgraded three asset managers: Janus Capital , Waddell & Reed and Legg Mason to "overweight." The brokerage firm said the firms will be supported by an improving economy, and noted they were attractively valued.

Also in financial news, Morgan Stanley is planning to cut its bonus payments by up to 15 percent this year due to volatile market conditions, the Wall Street Journal reported, citing a person familiar with the situation.

Ford shares were up modestly after Bank of America raised its earnings-per-share estimates and increasing its price target for the automaker to $24 a share from $20, based on a price-to-earnings ratio of 10 times estimated 2011 earnings. The brokerage said the stock should outperform because of the company's "strong mangaement, solid operating results, a consistently improving balance sheet, industry-leading product, and recovery in the U.S. sales cycle."

The brokerage also upgraded Goodyear Tire & Rubber and Cooper Tire & Rubber , citing attractive stock valuations. Goodyear was upgraded to "buy" from "underperform," and Cooper Tire was upgraded to "buy" from "neutral."

On the tech front, Dell rose slightly after news it was in "advanced discussions" to buy Compellent Technologies , a data storage solutions company. Compellent's shares fell.

Ciena advanced after delivering a positive sales outlook for the first quarter, and despite a disappointing fourth-quarter loss.

Akami shares sank after the Internet content delivery firm said pricing in its media business is falling. The firm, which provides technology to speed the delivery of Internet content, also said it would not update its outlook for the current quarter.

Shares of Conagra fell after the maker of Chef Boy-Ar-Dee pastas and Healthy Choice meals cut its 2011 outlook after disappointing fiscal second-quarter results.

Meanwhile, shares of Eastman Kodak soared more than 10 percent on 300 times its normal volume on rumors the company was a takeover target.

FBR Capital Markets gave mixed reviews of home improvement retailers Home Depot and Lowe's , raising Home Depot to "outperform" from "market perform," and lowering Lowe's to "market perform" from "outperform." FBR said Home Depot was more focused on "traffic and value" than its rival.

Sirius XM Radio gained after radio host Howard Stern said he was staying with the satellite radio station, although the terms of the agreement were not disclosed.

Lululemon Athletica soared after reporting its profit nearly doubled in third quarter as strong sales continued for its yoga clothes. Lululemon's net income rose to $25.7 million, or 36 cents a share, in the quarter ended Oct. 31, up from $14.1 million a year ago, and more than the 25 cents a share forecasted by analysts.

And the philanthropic campaign led by Warren Buffett and Bill Gates is set to get a cash injection after another seventeen U.S. billionaires pledged at least half their fortunes to the cause. Facebook co-founders Mark Zuckerberg and Dustin Moskovitz are among the donors.

Meanwhile, a watered-down spending bill has been approved by the House as the Democrats seek to lock in current spending levels before Republicans take control of the House in January.

Bullish sentiment among individual investors surveyed by the American Association of Individual Investors reached a four-week high, the group reported Thursday.

Expectations that stock prices will rise over the next six months rose 3.4 percentage points to 53 percent, a four-week high, according to the AAII's weekly survey. Bullish sentiment has been above its 39 percent historical average for 14 consecutive weeks, the group said.

In economic news, initial claims for unemployment benefits fell by 17,000 to 421,000, according to the U.S. Labor Department. That's less than the 425,00 forecasted by economists surveyed by Reuters. The four-week moving average fell by 4,000 to 427,500, near a two-year low, the Labor Department said.

In the previous week, claims were revised up to 438,000 from 436,000, the government said.

In a optimistic sign about holiday shopping, U.S. wholesale sales in October climbed more than they had in seven months as inventories continued to rise, the Commerce Department said Thursday. Wholesale sales rose 2.2 percent to a seasonally adjusted $362.1 billion, much more than expected, and compared with a 0.5 percent gain in September. Inventories rose 1.9 percent in October to $427.1 billion after a 2.1 percent rise.

European shares extended gains from the previous session with technology stocks showing the strongest rise. The Bank of England kept its monetary policy on hold, as widely expected.

Asian indexes closed mostly higher, but Chinese stocks saw sharp losses.

On Tap This Week:

THURSDAY: 30-year Treasury bond auction, DuPont investor day
FRIDAY: International trade, import and export prices, consumer sentiment, and Treasury budget

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