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SELLING BY BOND INVESTORS PUMMELS TREASURY MARKET

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Renewed waves of selling by bond investors hammered the Treasury market Friday, sending fixed-income prices sharply lower and yields soaring to four-month highs for a second time this week.

The fresh market retreat was triggered by news of unexpected strength in the housing market in January. The slide accelerated amid rumors of mutual funds dumping fixed-rate securities and an unusual advisory by a prestigious Wall Street firm that its clients sell bonds.By day's end, the price of the Treasury's main 30-year bond dropped 1 point, or $10.00 per $1,000 in face value. Its yield, which moves in the opposite direction, rose to 6.40 percent, matching a four-month high reached on Tuesday. The bond yield had closed at 6.33 percent late Thursday.

After advancing moderately in the previous two sessions, Friday's market rout suggested a return to a sell-off that by Tuesday had sheared more than 4 points off the long bond's price.

"All of this market skepticism is resulting in the rapid reversal," said Dan Seto, economist with Nikko Securities International Co.

Bond prices began tumbling after the Commerce Department reported that new construction of homes and apartments rose 4.4 percent last month. The January advance surprised most analysts who had expected a second straight loss because of severe weather and consumer anxiety over job and income growth that many believed would offset falling mortgage rates.

The news unnerved investors jittery over other recent signs of economic strength, which could persuade the Federal Reserve Board to refrain from further cuts in interest rates this year to stimulate the economy.

The Fed last reduced rates in late January, a move that improved the value of existing bonds and helped the market rally.

"The housing number confounded people, because almost everyone was looking for weakness in January and you got strength instead," said Hamilton Davis, a government bond trader with Kemper Securities Inc. in Chicago.

Large-scale selling of intermediate- and long-term securities snowballed during the day amid unconfirmed rumors that Fidelity Investments, the nation's largest mutual-fund company, was among the big sellers. A spokeswoman did not immediately return a phone call.

In addition, Morgan Stanley & Co. faxed an unusual warning to its large investor clients that they should place speculative bets on a future decline in bond prices.

Morgan Stanley believes the market advance earlier this week "represents a very good opportunity to sell U.S. fixed-income securities," the bulletin said.

Elsewhere in the Treasury market, prices of short-term Treasury securities ranged from 1-16 point to 5-32 point lower and intermediate maturities ranged from 5-16 point to 9-16 point lower, reported Dow Jones Telerate Inc., a financial information service.

The Lehman Brothers Daily Treasury Bond Index fell 4.07 points to 1,274.21.