Bonds perk up as stocks fall on recovery doubt

By Burton Frierson

NEW YORK (Reuters) - U.S. government debt prices rose on Monday, sending long bonds up a full point, as weaker stocks enhanced the allure of safe-haven investments and pulled benchmark yields down further from recent eight-month highs.

Wall Street appeared to be in doubt about the strength of an economic recovery in store for the United States this year, leading stocks lower. For details see .N.

Fueling the doubts, the World Bank warned on Monday that prospects for the global economy remained "unusually uncertain" despite recent signs of improvement in parts of the world. The bank cut its 2009 growth forecasts for most economies.

"Overall, it's due to the weakness in the equity market. That's giving bonds a boost, and we saw buyers from overseas," said Frank Hsu, director of global fixed income at Fimat in New York.

A round of Treasury purchases by the Federal Reserve lent further support, with the central bank buying Treasuries maturing in five to six years on Monday.

Fitting into the Fed's buying range, five-year Treasuries were up 11/32, yielding 2.73 percent, versus 2.81 percent at Friday's close.

Benchmark 10-year notes were up 18/32 in price, yielding 3.72 percent versus 3.79 percent on Friday.

Ten-year yields are still in the neighborhood of their recent eight-month highs around 4 percent, which they hit nearly two-weeks ago.

Longer maturities, which the Fed will be buying on Thursday, also benefited.

The 30-year bond rose more than a full point during morning trade in New York. It was last up 25/32, yielding 4.46 percent, versus Friday's close of 4.51 percent.

Investors were nervous before a two-day policy meeting by the Federal Reserve, which ends on Wednesday, but losses of about 2 percent in key stock indexes provided the major impetus for bonds.

Though the Fed's meeting would normally dominate a week like this, policymakers might play second fiddle as Treasury investors brace for a record volume of bond auctions that could saturate the market.

Investors will scour the Fed's statement for guidance on growth and any potential hints on expanding its $300 billion program of Treasuries purchases, which are aimed at keeping rates low as the economy recovers from the deepest downturn in decades.

But the Treasury's record $104 billion worth of bond auctions this week, part of its enormous efforts to finance a rescue of the world's largest economy, is likely to keep traders' nerves on edge.

The Treasury notes include $40 billion in 2-year notes on Tuesday, $37 billion 5-year notes on Wednesday and $27 billion in 7-year notes on Thursday.

(Reporting by Burton Frierson; Editing by Kenneth Barry)