November 30, 2007 / 8:53 PM / 12 years ago

GLOBAL MARKETS-Stocks up, bonds slip on rates, mortgage plan

(Adds afternoon prices)

By Herbert Lash

NEW YORK, Nov 30 (Reuters) - U.S. stocks gained and bond prices declined on Friday as financial markets were moved byconvictions the Federal Reserve will cut interest rates in two weeks and news that the U.S. government is working on plans to help homeowners recover from the subprime mortgage crisis.

The technology-laced Nasdaq fell after a disappointing outlook from Dell Inc DELL.O but mortgage lenders, bond insurers and homebuilding stocks that have been battered by the fallout over subprime lending posted double-digit gains.

Investors turned from the perceived safe-haven of government debt, pushing down bond prices, after Federal Reserve Chairman Ben Bernanke bolstered rate cut hopes.

The dollar was on track for its biggest weekly gain in more than a year against major currencies and oil fell, dipping below $90 a barrel.

Talk the U.S. Treasury Department was finalizing a plan with mortgage industry leaders that would hold interest payments steady for many subprime borrowers facing higher rates and possible foreclosure buoyed stocks and cut into bonds.

Many teaser rate loans are now entering default, which gave investors who have been spooked by the crisis some relief.

“This is a little bit of the extension on the relief that if credit concerns can ease, then maybe we’re out of the woods and a lot of the write-downs are probably over,” said David Goerz, chief investment officer at HighMark Capital Management in San Francisco.

The Dow Jones industrial average .DJI was up 13.41 points, or 0.10 percent, at 13,325.14. The Standard & Poor's 500 Index .SPX was up 6.01 points, or 0.41 percent, at 1,475.73. The Nasdaq Composite Index .IXIC was down 15.03 points, or 0.56 percent, at 2,653.10.

Tech stocks fell after a cautious outlook from Dell Inc DELL.O, which posted 27 percent profit growth but warned rising costs could depress future results.

European stocks advanced for a third day, with the pan-European FTSEurofirst 300 index .FTEU3 rising 1.2 percent at 1,526.59 points. But it was the worse month since May 2006.

Earlier in Asia, Tokyo's Nikkei average .N225 touched a three-week high while the MSCI's measure of other Asian stocks .MIAPJOOOOPUS climbed to two-week highs.

Emerging market equities gained almost 1 percent.

Bernanke helped spur the positive sentiment, signaling in a speech on Thursday an openness to lower interest rates again.

A recent resurgence in financial strains had dimmed the outlook for the U.S. economy, Bernanke said, adding that “the Fed will have to remain exceptionally alert and flexible.”

Mortgage lender Countrywide Financial Corp CFC.N and bond insurers AMBAC Financial Group Inc ABK.N and MBIA (MBI.N) led the stock surge, with Ambac gaining more than 27 percent before paring gains.

Rallying stocks tempted investors out of safer assets, pushing bond prices lower.

Benchmark 10-year notes US10YT=RR were trading 13/32 lower in price to yield 3.98 percent.

Profit-taking in the euro and month-end squaring up of positions by corporates helped the dollar surge.

The dollar rallied against a basket of six major currencies, gaining 0.73 percent to 76.142 .DXY. On the week, it was up 1.2 percent, on track for its best weekly gain since at least September 2006.

Lower U.S. interest rates usually weigh on the dollar because they reduce the yield on dollar-denominated assets, but analysts said the market was now taking a longer view.

“It’s the perception that the Fed will do what it has to do to keep the U.S. from falling into recession,” said David Watt, senior currency strategist at RBC Capital Markets in Toronto.

Oil plunged, extending a fall that has lopped nearly 10 percent off record prices on concerns about the health of the U.S. economy, which would reduce energy consumption.

“We’re in a downtrend because the market is very concerned about the economy and where it goes from here,” said Eric Wittenauer, analyst at AG Edwards in St. Louis.

Oil also tumbled on expectations that the Organization of the Petroleum Exporting Countries could agree in Abu Dhabi next week to boost output.

Gold slid about 2 percent to touch a 10-day lo, slipping further from this month’s 28-year high as the market gave way to profit-taking.

At New York’s last quote, spot gold XAU= stood at $783.50/784.20 per troy ounce.

Prices have fallen about 5 percent since hitting a two-week high of $836.70 on Monday, reflecting heightened volatility as prices were pulled between oil and a strengthening dollar. (Additional reporting by Ellis Mnyandu, Chris Reese, Lucia Mutikani, Matthew Robinson and Richard Valdmanis in New York, Hart Matthews in Charlotte, North Carolina and Veronica Brown in London)

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