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By DAVID K. RANDALL, Associated Press Business Writer David K. Randall, Associated Press Business Writer – Tue?Nov?9, 4:26?pm?ET

NEW YORK – Stocks and government bonds fell Tuesday as commodities rallied to two-year highs.

Silver, soybeans and copper jumped to levels last seen in October 2008 as investors moved money into hard assets in anticipation that a massive economic stimulus plan announced by the Federal Reserve last week will continue to weaken the dollar. Investors are expecting that commodities will hold their value even if the dollar falls.

The Fed plans to buy $600 billion in U.S. government bonds over the next six months in an effort to push interest rates even lower and encourage borrowing and spending. It's a tactic called quantitative easing, one that the Fed used successfully in 2008 to restore confidence in financial markets at the height of the credit crisis.

"The market is still being driven by the Fed's actions and it will be for a while," Dirk van Dijk, senior equity strategist at Zacks.com.

Treasury prices fell despite a strong auction of 10-year notes. Investors are concerned that demand may be weak for 30-year bonds in an auction upcoming Wednesday. The price of the 30-year bond was down sharply, losing about two full points, or $2 per $100 in face value. Its yield rose to 4.23 percent, the highest level since June 10.

The 30-year bond wasn't one of the maturities being heavily targeted by the Fed's purchasing program announced last week, and its long maturity makes it more sensitive to inflation than shorter-term notes.

Many investors worry that the Fed's bond-buying program could lead to a jump in inflation down the line, which would erode the value of all bonds since their fixed payouts would become worth less over time. With the Fed now focused on encouraging some inflation, "it might be hard for investors to convince themselves to buy" at Wednesday's auction, said John Briggs, a fixed income analyst at RBS.

The dollar has been falling against other currencies in anticipation of the Fed's stimulus program, but it gained 0.9 percent against an index of other currencies Tuesday as new troubles emerged in Ireland, one of the weaker countries that use the euro, Europe's shared currency.

Investors are concerned that Ireland's government will not be able to pass additional spending cuts and will have to ask for financial assistance. Greece, another member of the euro club, was forced to seek a bailout from other European countries in April after investors dumped the countries bonds in the wake of a fiscal crisis there.

The Dow Jones industrial average fell 60.09, or 0.5 percent, to 11,346.75. The broader Standard & Poor's 500 index fell 9.85, or 0.8 percent, to 1,213.40, while the technology-focused Nasdaq composite index fell 17.07, or 0.7 percent, to 2,562.98.

Every industry group within the S&P 500 fell. Financial shares, which fell 2.2 percent, were the worst performing industry group.

Gold settled at $1.410.10 an ounce, up $6.90. The precious metal is hovering near record levels in dollar terms but is still well below its peak in the early 1980s after accounting for inflation.

The weakening dollar has been benefiting gold as investors seek other assets seen as safe places to park money. Some gold investors see the metal as a hedge against national currencies losing their value as a result of inflation.

Silver rose, jumping 5.4 percent to settle at $28.906 an ounce. The metal's large gains may be a result of traders buying silver because it had fallen below its typical price relationship with gold. Gold usually trades at 50 times the price of silver, said Rick de los Reyes, a metals and mining analyst at T. Rowe Price.

"Gold is someone's first instinct when they are buying for all of the reasons they're buying gold right now, and silver usually lags somewhat," he said. Silver, which has a greater use for industries than gold, is rising alongside other industrial metals like platinum and copper.

In corporate news, Chevron Corp. shares fell 1.5 percent after announcing a deal to buy the natural-gas producer Atlas Energy for $4.3 billion, following other natural gas deals by rival energy giants Exxon Mobil Corp. and Royal Dutch Shell PLC.

Shares of Dean Foods Co. sank 17.9 percent after the country's largest dairy company announced disappointing results. The company has slashed prices to compete with supermarkets selling milk under their own labels. Dean Foods shares have slumped 53 percent for the year, making it one of the worst performing stocks in the S&P 500 index.

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SYDNEY (Reuters) – Asian stocks rebounded on Thursday after having suffered their biggest one-day fall in four months, while the yen held firm against a broadly weaker dollar, taking details of the Bank of Japan's stimulus plan in its stride.

European shares took their cue from Asia with London's FTSE 100 index (.FTSE) gaining 0.7 percent at the open and Germany's DAX (.GDAXI) climbing 0.5 percent. U.S. stock index futures were all up between 0.1 and 0.2 percent.

The BOJ said it would meet next week, bringing forward the November 15-16 policy meeting to speed up the launch of a 5 trillion yen ($61 billion) asset buying plan aimed at helping the economy cope with a strong yen.

It kept interest rates unchanged near zero as widely expected.

"What stands out is that the BOJ rescheduled its next meeting, bringing it forward, which suggests the central bank wants to make sure it can take action if needed after the FOMC," said Takeshi Minami, chief economist at Norinchukin Research Institute, referring to the U.S. central bank meeting on November 2-3.

The MSCI index of Asia Pacific stocks outside Japan rose 0.7 percent (.MIAPJ0000PUS), having slid nearly 2 percent on Wednesday to post its biggest one-day percentage fall since late June. Still, it remained close to a 28-month high hit last week.

Financial markets have been volatile this week as speculation intensifies over how much the Federal Reserve is likely to spend to pump up a faltering recovery and whether such new measures will be carried out swiftly or phased in over time.

Analysts expect choppy market action to persist in the lead up to next week's meeting.

Market participants have begun to scale back expectations of the size of any additional stimulus with The Wall Street Journal reporting on Wednesday that Fed officials wanted to avoid a "shock and awe" approach.

"I think the Fed is trying to prepare the market for incremental QE2 and this whole pre-announcement, in a way, is to cushion the impact if it comes out on November 3rd that it is only $100 billion rather than $1-$2 trillion," said V. Anantha-Nageshwaran, CIO of Julius Baer in Hong Kong.

Asian governments are worried about the impact this might have on their economy. South Korean Finance Minister Yoon Jeung-hyun said on Thursday the government needs to guard against a potential asset bubble caused by excessive liquidity. Japan's Nikkei stock average (.N225), which was spared the selloff seen in the region on Tuesday, slipped 0.2 percent to end at a six-week low, while Hong Kong's Hang Seng index (.HSI) gained 0.3 percent and Australia's S&P/ASX 200 index (.AXJO) rose 0.8 percent.

Among the top performers, shares in Canon Inc (7751.T) rallied more than 3 percent after the world's largest maker of digital cameras posted strong quarterly results and raised its full-year outlook.

In Australia, upbeat earnings helped drive ANZ shares (ANZ.AX) up about 3 percent, while bourse operator ASX (ASX.AX) climbed 1.5 percent after two days of sharp losses due to uncertainty over Singapore Exchange's (SGXL.SI) $7.9 billion bid.

The MSCI's emerging market stock benchmark (.MSCIEF) rose 0.2 percent.

The selloff in commodities also halted with copper, which dropped more than $200 a metric ton on Tuesday, its steepest decline since late June, gaining $30 to $8,330 a metric ton.

U.S. light sweet crude oil was little changed at $82.00 per barrel, while spot gold was also steady near $1,326.00 an ounce.

DOLLAR SAGS

The U.S. dollar eased against a basket of six major currencies (.DXY) after two straight days of gains helped the index climb back into positive territory for 2010.

The euro rose to $1.3833 from $1.3764 late in New York, while the dollar eased to 81.42 yen from 81.69 yen, hovering not far from a record low of 79.75 yen.

The dollar's decline also coincided with a pullback in U.S. Treasury yields, which gained sharply in the past few sessions as the market scaled back expectations of the size of Fed's likely asset purchase program.

The U.S. 10-year yield was last at 2.69 percent, down from a one-month high of 2.73 percent set on Wednesday.

"Overall, we still see the risk for the FOMC next week is going to be toward U.S. dollar strength once the dust settles," said Sue Trinh, senior currency strategist at RBC Capital Markets in Hong Kong.

"Much of the market is pretty much expecting $100 billion per month for the next six months or so. So we'll need to see asset purchases in excess of that in order to generate fresh U.S. dollar weakness."

(Additional reporting by Vikram Subhedar in Hong Kong; Editing by Nick Macfie)

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