Treasury prices spiked higher yesterday morning when stock prices plunged wildly, but by the end of the day stocks had stabilized and Treasury prices had given back most of their early gains.

The 30-year bond closed 1/4 point lower on the day, where it yielded 7.34%, after having been up 5/8 point when the stock market was at its weakest.

Analysts blamed the stock market's declines on worries about the weak economy and about the probability of another Fed easing - the same topics the bond market has been concerned about.

Stock prices fell rapidly after trading opened yesterday morning, and by 11:30, the Dow Jones industrial average had lost more than 100 points.

But the stock market bounced off those lows at about the same time Ford Motor Co. reported better-than-expected late-September car sales. From that point on, the stock market slowly retraced its losses, with the Dow closing only 21.61 points lower at 3179, and Treasury prices gave back most of their early gains.

Dramatic declines in stock prices often cause investors to seek a safe haven at the short end of the Treasury market. But traders said yesterday morning's gains in the Treasury market reflected speculative buying, rather than a big switch by retail investors into bonds from stocks.

"I think it was dealers that were pushing it up, we didn't see a lot of accounts that were in buying," a government note trader said.

The Treasury market also benefited from the notion that the stock market's problems would put more pressure on the Federal Reserve to cut interest rates. The bond market has been anticipating an easing by the Federal Reserve for weeks. When the Fed held policy steady on Friday, despite the 57,000 decline in September nonfarm payrolls, traders decided policymakers might be waiting for today's Federal Open Market Committee meeting.

Many traders still hope for a move today or tomorrow, although doubts have been growing since the Fed failed to act Friday.

Brian Fabbri, chief economist at Midland Montagu, said he thought an easing was "mandatory."

"Virtually every economic statistic we've gotten shows that the housing and manufacturing sectors are dead in the water, while the service industries are slowly inching ahead," Fabbri said. "When we add on top of that the very slow inflation rate, the slow growth in money supply, and lack of any credit growth in the banks, all of it seems to argue for another stimulus.

He said the most likely Fed action would be a 1/2-point cut in the discount rate, to 2 1/2%, and a 1/4-point cut in federal funds, to 2 3/4%.

But Jerry Zukowski, an economist at PaineWebber Inc., expects the Fed to wait until Oct. 14, when September retail sales will be released.

Earlier yesterday, long-term prices came under some pressure as the dollar weakened. The dollar reached an all-time low against the yen, at 1 18.92, in overseas trading, but by late yesterday had bounced back to 1 19.85 yen.

Some analysts say the dollar's weakness argues against an immediate easing because the Fed realizes that a cut in U.S. interest rates would tend to weaken the dollar even more.

But Michael Moran, chief economist at Daiwa Securities America, said he did not think the weak dollar was that much of a constraint.

"I think the proper, perspective is the Fed is not so much bothered by the dollar's level, but by erratic conditions in the foreign exchange market," Moran said. "If you can avoid the volatile conditions, I think the Fed would tolerate an orderly downward movement in the dollar. "

Analysts said car sales were running at an annual rate of 6.8 million during the last 10 days of September, well above the consensus forecast for a 6.2 million pace. But they added that the strength should be partly discounted because sales tend to pick up during the last 10 days of September as manufacturers try to get rid of cars at the end of the model year.

The late-September rise in sales dragged the month's sales pace up to a 6.3 million annual rate, which compares to the 5.9 million pace during August.

"The bottom line is that we're not surging, even with all the incentives out there," said Diane Swonk, a senior regional economist at the First National Bank of Chicago. "We're regaining some of the steam lost during the summer, but we don't see any strong upward momentum."

The December bond futures contract closed 3/32 lower at 105 24/32.

In the cash market, the 7 1/4% 30-year bond was 6/32 lower, at 98 24/32-98 28/32, to yield 7.34%.

The 6 3/8% 10-year note rose 1/32, to 100 30/32-101 2/32, to yield 6.22%

The three-year 4 5/8% note was up 1/32, at 101 11/32-101 13/32, to yield 4.09%.

Rates on Treasury bills were all higher by one basis point, with the three-month bill at 2.64%, the six-month bill at 2.80%, and the year bill at 2.89%.

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