Meanwhile, Pimco's Total Return Fund, the world's biggest bond fund, dumped all its U.S. government-related securities, including Treasurys and agency debt, according to a source familiar with the fund's holdings.
"It just gives people that follow him the bias not to bullish on the Treasury market. He thinks rates are going higher," John Spinello, Treasury's strategist at Jefferies, told CNBC.com.
The S&P 500 has soared 95.4 percent since it bottomed at 676.53 on March 9, 2009 after hitting a peak of 1,565.15 on Oct. 9, 2007. The rally in the broad market index is its best in 55 years. Some stocks have done particularly well, including Genworth Financial , up 1329.7 percent, and JDS Uniphase , up 1,048.4 percent.
In stocks news, Molycorp traded lower ahead of releasing quarterly earnings after the market closes.
On the tech front, shares of Finisar plunged more than 30 percent after the fiber optic component maker posted a disappointing forecast, although its earnings more than tripled. Piper Jaffray cut its price target on the stock to $37 a share from $54, while Citigroup cut its target to $30 from $35.50.
That news hit other companies in the sector, including rival JDS Uniphase and Ciena.
Texas Instruments also slumped after the chipmaker narrowed its guidance and said that demand for chips for televisions remains weak, although UBS raised its price target on the firm to $36 a share from $32.
But IBM shares advanced after at least six brokerages raised their price targets on the tech giant.
Stocks were higher across the retailers. Children's Place soared despite a 5.8 percent decline in profits, as better margins and lower expenses kept losses in check.
Also in the retail space, American Eagle Outfitters jumped more than 6 percent after the teen retailer forecast profits in line with analysts' estimates. The firm also announced the retirement of its CEO. And rival Aeropostale also climbed after the clothing retailer signed a deal to open about 25 stores across Asia over the next five years.
Bon-Ton Stores soared almost 10 percent after the department store chain posted a robust profit as a key revenue metric improved.
Fertilizer stocks took a hit after Citigroup said the sector was fully valued and it was time to take profits. Potash and Mosaic both fell after Citi lowered its ratings on the stocks to "hold" from "buy."
Honeywell slipped despite issuing an improved forecast for first-quarter sales and profit. The diversified manufacturer reaffirmed its outlook for 2011, and said it authorized a $3 billion stock buyback.
Shares of Dynegy skidded after news the power company may declare bankruptcy if it can't replace or amend a loan agreement.
Boston Beer tumbled more than 3 percent after the producer of Samuel Adams beer, posted lower-than-expected earnings results, hurt by advertising, promotional and selling expenses. (Watch: Boston Beer founder Jim Koch on CNBC)
Johnson Controls , meanwhile, gained after Barclays raised its rating on the diversified manufacturer to "overweight" from "equalweight," saying the company's building efficiency unit should benefit from rising prices.
In IPO news, HCA, the biggest U.S. for-profit hospital chain, is expected to price an initial public offering Wednesday at the top end of its $27-30 range, CNBC has learned.
Treasury prices gainedafter the government auctioned $21 billion in 10-year notes, which had a high yield of 3.499 percent and a bid-to-cover of 3.32. The government is expected to auction 30-year bonds on Thursday.
In U.S. economic news, the Mortgage Bankers Association's seasonally adjustedindex of mortgage application activity rose 15.5 percent in the week ended March 4, the highest level in three months. And U.S. wholesale inventories rose 1.1 percentin January to $436.88 billion, the highest level in 14 months, according to the Commerce Department. Economists surveyed by Reuters had expected a 0.9 percent increase.
Sovereign debt worries continued to weigh on the market in Europedays after Moody's cut its rating on Greece's debt by three notches, and ahead of a meeting of euro zone heads of state Friday. The FTSEurofirst 300 index of top European shares closed 0.3 percent lower.
The Saudi stock market got a lift from billionaire Prince Alwaleed bin Talalwho said he would invest invest 1 billion riyals ($267 million). The Saudi stock market has been battered by unrest in the Middle East.
On the Calendar:
WEDNESDAY: Earnings after-the-bell from H&R Block.
THURSDAY: BoE announcement, international trade, jobless claims, quarterly services survey, 30-year Treasury bond auction, Treasury budget, money supply, Nasdaq peak anniversary; Earnings before-the-bell from Smithfield Foods and after-the-bell from National Semiconductor.
FRIDAY: Retail sales, consumer sentiment, business inventories, S&P index rebalancing info due, Apple's iPad 2 ships; earnings before-the-bell from Ann Taylor.
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