Dollar weakens; bond prices rise

By Herbert Lash

NEW YORK (Reuters) - The euro and the yen rose on Monday as the appeal of the U.S. dollar as a safe haven eased after a better-than-expected reading on American manufacturing data, but bond prices rose on a renewed flight to safety buying.

U.S. technology shares rose on hopes they might be an early beneficiary of a stimulus spending bill in Congress.

But weak economic data and uncertainty about the fate of President Barack Obama's plans to stem bank losses weighed on most stocks, while data pointing to further economic pain sent crude oil prices down almost 4.0 percent.

Companies continued to lower their outlooks because of a worsening economic environment that could be seen in the data.

U.S. consumers cut spending for a sixth straight month in December and their incomes shrank, while U.S. construction spending fell for a third straight month in December.

"The economic data is sinking in on everybody," said James Caron co-head of global rates research at Morgan Stanley in New York. "It seems as though the government's stimulus plan is stumbling a little. The clarity of it is not what it once was," he said.

The boost from the tech stock sector was limited by declines in shares of big manufacturers, including 3M Co (MMM.N), down nearly 6.0 percent, and Boeing (BA.N), off 3.6 percent. Among financials, Bank of America Corp (BAC.N) slid 8.8 percent.

Tech standouts included bellwethers Microsoft (MSFT.O), up 4.3 percent, and Intel Corp (INTC.O), which gained 5.7 percent.

"Clearly people are trading sector baskets. They are trying to make bets what industry will recover or get worse," said Eric Kuby, chief investment officer at NorthStar Investment Management Corp in Chicago. "Tech is one of those baskets."

The Institute for Supply Management said its index of U.S. factory activity rose to 35.6 from a nearly three-decade low of 32.9 in December, its first increase since June, in a report that provided a sign of relief for the battered U.S. economy.

Both the Dow and S&P 500 briefly fell 10 percent for the year on Monday after the two U.S. benchmarks racked up their worst January ever. Financials were behind the decline, as they were in Europe, where the leading index ended sharply lower.

The Dow Jones industrial average .DJI closed down 64.11 points, or 0.80 percent, at 7,936.75. The Standard & Poor's 500 Index .SPX fell 0.45 points, or 0.05 percent, at 825.43. The Nasdaq Composite Index .IXIC rose 18.01 points, or 1.22 percent, at 1,494.43.

The FTSEurofirst 300 index .FTEU3 of top European shares ended down 2.4 percent at 777.28 points.

Banks continued to be the weakest sector in Europe. British bank Barclays (BARC.L) was a top loser, falling 12.3 percent after a Moody's downgrade.

French bank BNP Paribas (BNPP.PA) slid 9.4 percent, hit by its statement that a revised deal to buy assets of stricken Belgian-Dutch financial group Fortis (FOR.BR) would not boost its core capital ratio.