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U.S. Treasury securities remained under the gun on Friday, with traders selling on concern that possible interest-rate hikes in the euro zone and Japan will dent investors' appetites for government debt. Worries of rate hikes heightened on news that economists at Lehman Brothers are now saying they expect short-term interest rates to hit 5.5 percent by the end of the summer. That's a full point higher - or four more 25-basis-point increases - from today's 4.5 percent rate.

Steady selling in Treasuries kept the yield, which moves in the opposite direction of price, on the benchmark 10-year note at its highest levels since June 2004. This has forced mortgage lenders, who base their rates on Treasury yields, to edge them up on many popular products.

Economic reports, mixed though they were, had little effect on the bond markets, which were in selling mode long before the data were released. The University of Michigan's final consumer sentiment survey for February fell to 86.7 from 91.2 at the end of January. Satisfaction with both present and future conditions was down, with rising gas prices cited as one of the main problems. The decline was not totally unexpected, as the preliminary survey, taken two weeks ago, showed a dip to 87.4.

The Institute for Supply Management, or ISM, released the February index for the service sector, which jumped to 60.1. This was greater than the 58.2 that was forecast, and was well above the 56.8 posted in January. Like the ISM index on manufacturing, new orders and employment were up and prices paid were down - good news for inflation watchers. Ten of the 17 sectors surveyed reported increases, led by mining, insurance and communications. Those lowest on the totem pole were agriculture, wholesale trade and entertainment.

Wall Street rides the roller coaster

Stocks opened down, and then rose, only to close in negative territory. Intel lowered its first-quarter revenue forecast sending the markets down at opening. The world's biggest manufacturer of semiconductors cited weaker demand for chips and a slight loss in market share as reasons for the downward revision. Intel has had a tough time this year, making its way through at least nine downgrades.

In addition, the big jump in interest rates has investors concerned that higher rates will slow the economy and dig into corporate profits. And three days of rising oil prices have put additional pressure on the markets.

Once Wall Street determined that Intel's problems were specific to that company and not to the sector in general, the tides turned. The three major indexes moved into positive territory and remained there until the last hour of trading.

On the Dow Jones industrials losers outweighed winners, with Hewlett-Packard shedding 2.7 percent. An online report from Barron's suggested PC sales were slowing, putting pressure on Hewlett-Packard and Dell. Verizon was down 1.2 percent and AT&T and GM each lost 1 percent. Alcoa headed the 13 components that closed positive with a 1.7-percent gain, followed by Pfizer with a 1.1-percent increase. Other gains were moderate to small.

The Nasdaq was the biggest loser of the day, with Dell dropping 1.5 percent and Novell Inc. down 17 percent on a soft forecast. JDS Uniphase continued its winning ways, adding 6.3 percent, while Sun Microsystems was up 4 percent.

As of 4 p.m., EST:

The Dow Jones industrial index closed down 3.92 points (-0.04 percent) to 11,021.59; the Nasdaq composite lost 8.51 points (-0.37 percent) to 2,302.60, and the Standard & Poor's 500 index fell 1.91 points (-0.15 percent) to 1, 287.23.

The 30-year Treasury bond closed down 23/32 in price with the yield rising to 4.66 percent, from 4.61 percent on Thursday.

The 10-year Treasury note closed down 13/32 in price with the yield rising to 4.68 percent, from 4.63 percent on Thursday.

The five-year Treasury note closed down 6/32 price with the yield rising to 4.70 percent, from 4.67 percent on Thursday.0The two-year Treasury note closed down 2/32 in price with the yield rising to 4.75 percent, from 4.71 percent on Thursday.

At 4 p.m. EST, average mortgage rates (zero discount points) based on rates collected nationwide were:

The 30-year conventional fixed-rate mortgage at 6.046 percent, up from 6.021 percent on Thursday.

The 15-year conventional fixed-rate mortgage at 5.647 percent, up from 5.635 percent on Thursday.

Coming up:

Next week is a little short on economic reports, but it ends with a bang. The February employment report is due on Friday. Prior to that we will get information on wholesale inventories, the U.S. trade deficit and revised fourth-quarter productivity and costs.

On Monday the week begins with factory orders for January, which are expected to slide 5.4 percent after an increase of 1.1 percent in December. Since this report is largely based on durable goods orders, which took a dive in January due to a steep decline in aircraft orders, it shouldn't offer any surprises.

Today's increases in Treasury yields are likely to keep upward pressure on mortgage rates, which could creep higher over the weekend and into Monday.

Carolyn Siegel

Carolyn@interest.com

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