Bonds fall as stock rally overshadows weak data

By Richard Leong

NEW YORK (Reuters) - Treasury debt prices fell on Thursday, as traders favored stocks over bonds on upbeat earnings outlook that overshadowed data supporting the grim view on the economy.

While most retailers reported dismal sales for March on Thursday, Wal-Mart (WMT.N: Quote, Profile, Research), the world's biggest retailer, raised its first-quarter earnings forecast.

Wal-Mart's higher forecast suggested that the crucial U.S. consumer sector, which accounts for more than two-thirds of the economy, is not in free-fall even as consumers struggle with heavy debt loads, record gasoline prices and a swooning job market.

Also on Thursday, J.P. Morgan Securities raised its profit forecast on tech bellwether Apple Inc (AAPL.O: Quote, Profile, Research), saying stronger-than-expected MacBook shipments will offset softer iPhone and iPod sales.

Some analysts now believe that if a U.S. recession does occur, it will not be a deep and long as some has feared, which would be positive for corporate earnings and stocks. That view limited the safe-haven appeal of bonds on Thursday.

"It's a reassessment in the values of rates and bonds versus other risk assets, notably stocks," said George Goncalves, chief agency, TIPS and Treasury strategist at Morgan Stanley in New York.

Major U.S. stock indexes were up as much as 1.5 percent.

Bond prices initially rose after government figures showing an unexpectedly wider U.S. trade deficit and a rise in a benchmark figure jobless claims confirmed the notion the United States is slipping into recession and will spur the Federal Reserve to trim interest rates further to prevent a prolonged economic contraction.