Persistent weakness in the major stock proxies today enhanced the appeal of bonds, both as an alternative investment and on their own merits. The thinking is that continued weakness in stocks makes likelier an interest-rate cut by the Fed sometime in the next several months.

The market shrugged off a stronger-than-expected September

Consumer Confidence Index

(

definition |

chart |

source

), which cast doubt on the notion that the recent run-up in energy prices will do much to slow the economy.

"The general concern of the market is flight-to-quality now," said Mike Franzese, government bond trader at

Zions First National Bank

in Jersey City, N.J. Amid concern about third-quarter earnings, "everyone is jumping into bonds."

The benchmark 10-year

Treasury note gained 8/32 to 99 19/32, dropping its yield 4.4 basis points to 5.804%. Shorter-maturity yields improved by comparable amounts.

The 30-year

Treasury bond rose 20/32 to 105 16/32, cutting its yield 4.3 basis points to 5.856%. And at the

Chicago Board of Trade

, the December

Treasury futures contract added 14/32 to 98 25/32.

With both oil and the euro -- the bond market's twin obsessions of late (first-tier economic data has been scarce) -- relatively stable, the bond market focused on the stock market, which was anything but. "I think

the Treasury market is responding primarily to the weakness we're seeing on the equity front,"

Morgan Stanley Dean Witter

fixed-income strategist Kevin Flanagan said.

The bond market can benefit from falling stock prices both because people cashing out of stocks may buy bonds instead, and because of the damage they can do to consumer confidence. If stock prices keep falling, the thinking is, consumers will feel less wealthy and spend less, and consumer spending is the main driver of economic growth.

Consumer confidence hasn't faltered yet. The

Conference Board

today reported that the Consumer Confidence Index rose to 141.9 in September from 140.8 in August. Economists polled by

Reuters

had forecast a smaller rise, to 141.4, on average.

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Consumer confidence rose in spite of the sharp rise in oil prices that occurred earlier in the month, suggesting that high energy prices might do less to slow the economy than some have suggested.

"The reaction of consumers remains a key factor that will determine how recent energy price increases will effect the economy,"

Barclays Capital

economist Henry Willmore wrote recently. "So far it appears that consumers are remaining confident. This will delay and possibly mute the impact of higher oil prices on growth."

On the other hand, there is evidence that some types of production -- paper, lumber and aluminum, to name three -- are slowing in response to higher energy prices, said Bill Fitzgerald, head of fixed income at

Nuveen

in Chicago. "In today's competitive consumer markets, it's very difficult for consumers to pass on price increases," he said. "Companies choose to reduce production rather than face the prospects of lower profitability."

Economic Indicators

In other economic news, the weekly retail sales reports were unimpressive. The

BTM Weekly U.S. Retail Chain Store Sales Index

(

definition |

chart ) fell 1.1%, its largest drop since the last week of March. The

Redbook Retail Average

(

definition |

chart ) found September sales running 0.9% ahead of August's, compared with 1.2% the previous week.

Currency and Commodities

The dollar fell against the yen and the euro. It lately was worth 107.55 yen, down from 107.78. The euro was worth $0.8826, up from $0.8742. For more on currencies, see

TSC's

Currencies column.

Crude oil for November delivery at the

New York Mercantile Exchange

fell to $31.50 a barrel from $31.57.

The

Bridge Commodity Research Bureau Index

rose to 226.33 from 226.08.

Gold for December delivery at the

Comex

was unchanged at $277.30 an ounce.