Treasuries rise with dollar as S&P retreats from four-year high

March 27 (Bloomberg) -- Treasuries rose, trimming the biggest monthly drop in more than a year, and the dollar strengthened against most major counterparts after reports showed declines in U.S. home prices and consumer confidence. The Standard & Poor’s 500 Index fell from an almost four-year high.

Ten-year Treasury yields lost seven basis points to 2.18% at 3:52 p.m. in New York, paring the monthly gain to 21 basis points. The dollar added 0.2% to $1.3328 per euro as it strengthened versus 12 of 16 major counterparts. The Standard & Poor’s 500 Index slipped 0.2% to 1,413.51 after closing at the highest level since May 2008 yesterday. The Nikkei 225 Stock Average erased losses from last year’s earthquake. Natural gas slumped to a 10-year low on speculation government data this week will show a growing surplus.

Treasuries gained as a $35 billion auction of two-year securities met stronger-than-average demand while reports showed declines in consumer confidence and home prices. Federal Reserve Chairman Ben S. Bernanke signaled yesterday he will continue to stimulate the economy. An International Monetary Fund official said today the group expects “modest growth” in the U.S. and a mild recession in Europe.

“The auction went very well, and should extend to the rest of the week’s auctions given the sentiment,” said Suvrat Prakash, an interest-rate strategist in New York at BNP Paribas Securities SA, a primary dealer obliged to bid at Treasury offerings. “There is less risk appetite, which is beneficial for bonds. Going into quarter-end and month-end, there is more reluctance to take on risk position because people want to pay it safe.”

Bonds, Stocks

The Treasury auction drew a yield of 0.340%, compared with a forecast of 0.349% in a Bloomberg News survey of seven of the Federal Reserve’s 21 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.69, versus an average of 3.53 for the past 10 sales.

U.S. 30-year bonds advanced also, sending yields down four basis points to 3.30%. Pacific Investment Management Co.’s Bill Gross said continued credit expansion by central banks will produce accelerating global inflation and slower growth. Two-year yields fell two basis points to 0.33%.

Among U.S. stocks, Bank of America Corp. slipped after its shares were downgraded by Robert W. Baird & Co. Apollo Group Inc., the biggest U.S. for-profit college company, slumped amid concern over new enrollments. Lennar Corp., the third-largest U.S. homebuilder by revenue, advanced as earnings exceeded projections.

The S&P 500 has climbed almost 13% since the end of last year, poised for the best first quarter since 1998, amid better-than-forecast earnings and economic data. Financial companies and computer makers rose the most among 10 groups, with gains of more than 22% so far this year.

Investors chasing gains in stocks may help drive the S&P 500 to 1,440 in coming weeks while leaving the market vulnerable to losses once the so-called “window dressing” is over, UBS AG said.

Eyeing 1,440

Peter Lee, the New York-based chief technical analyst for UBS, said fund managers’ purchases of the best-performing stocks at the end of the quarter are likely to push the S&P 500 toward his 2012 target range of 1,440 to 1,450 sooner than the second half of the year, as he had anticipated. A failure of the benchmark index to hold gains above these levels may trigger a pullback of 5% to 10%, he said.

A gauge of homebuilders in S&P indexes rose for a second day. Home prices in 20 U.S. cities dropped at a slower pace in January, pointing to stabilization in the housing market. The S&P/Case-Shiller index of property values in 20 cities fell 3.8% from a year earlier, matching the median forecast of 32 economists surveyed by Bloomberg News, after decreasing 4.1% in December.

The Conference Board’s confidence index dropped to 70.2 from a revised 71.6 reading in February that was higher than initially reported.

In Europe, Royal Bank of Scotland Group Plc climbed 3.3% after two people with knowledge of the situation said the U.K. government held talks with investors, including Middle Eastern sovereign wealth funds, about a sale of part of its stake. The U.K. said it will only sell its majority holding in RBS when it has obtained maximum value for taxpayers.

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