Updated from 3:30 p.m.

Treasury prices moved inversely to equities in the wake of the

Federal Reserve's half percentage point decrease in the

fed funds rate at its latest

FOMC meeting this afternoon. They ventured back and forth between positive and negative territories as stock prices slid, then came back up and then tumbled again. Yields of the notes were a little more volatile than those of the bonds, and all touched or recharted their two-year lows.

"There was a very brief reaction in bonds early on as prices fell, but then the money market paid attention to how the stocks reacted. And now the

Dow is down by more than 200, so government securities are firmly up," said Michael Cartine, Treasury analyst at

IFR/Thomson Financial

. He did note, however, that the 50 basis-point cut possibly met the hopes of many investors as "expectations had been all over the place."

The benchmark 10-year

Treasury note rose 12/32 to 101 27/32, lowering its yield 4.9 basis points to 4.764%.

The 30-year

Treasury bond rose 12/32 to 101 20/32, lowering its yield 2.6 basis points to 5.265%.

"The fed funds futures were divided evenly between a 50 and a 75 basis-point cut, with 50 being slightly the more forecasted outcome," said Kevin McKenna, head of taxable money market funds at

Merrill Lynch Asset Management

. "The Fed wants to do more but cannot surrender its monetary policy for the

Nasdaq," he said. "Lately, consumer confidence has been a primary concern and the Fed is doing what it takes to correct that."

McKenna also believes that central bank chairman

Alan Greenspan wants to be the one in charge about the timing and degree of any interest rate cuts. "During the Jan.3 intermeeting cut, Greenspan made it clear that he is running the Fed and will do what needs to be done. And, they prefer to act at meetings," he said.

Michael Moran, chief economist at

Daiwa Securities

, believes that with the FOMC stating today that it will "monitor developments closely" an intermeeting rate cut is forthcoming. "A similar statement was included in the release from the Dec. 19 FOMC meeting, and the Fed eased two weeks later. We should not necessarily expect a move in two weeks, but the Fed could well lower rates before the next FOMC meeting on May 15," he reasons in the company's

Data Review

.

With stocks enduring another bad day, it proves the "Fed's medicine is not enough," according to Cartine, though he doesn't think that the markets are necessarily trying to force the hands of the central bank for another quick move. "The stock market has other problems as well. The Fed had tried to restrain the rise in equities when they were on the way up, and that didn't work, so it may not be able to do much as equities come down."

There is no question, though, that further rate cuts are on the way, if not in April then at the next monetary policy meeting in May.

"My expectation is that there will be more easing, with the Fed remaining watchful about the domestic as well as the international situation. The tax break is going to be important. There is agreement in Washington about something coming up sooner rather than later. So that move is going to take credit for helping improve the economy as well," McKenna said.

Cartine agrees that Greenspan will remain concerned about the state of the economy. "The employment report, retail sales and especially the consumer confidence index are going to be important over the next two weeks in determining their strategy," he says. He dismissed the idea that an improvement in the consumer sentiment index last week might have played a role in determining the size of today's cut.

Commenting on the poor corporate results that have struck such a discouraging note about the current economy, the Fed stated in its release at the conclusion of the meeting that "persistent pressures on profit margins are restraining investment spending and, through declines in equity wealth, consumption." It also warned that the excess in production capacity that has emerged recently "could continue for some time and the potential for weakness in global economic conditions suggest substantial risks that demand and production could remain soft."

Earlier this morning, in an interview with the French newspaper

Le Monde

, former Treasury Secretary Lawrence Summers said healthy public finances, a credible monetary policy, a solid banking system and productivity gains from new technologies are reasons for continued expansion in the U.S.

At the

Chicago Board of Trade

, the March

Treasury futures contract rose 10/32 to 106 21/32. The June contract rose by the same amount to 106 11/32.

Economic Indicators

In economic news, the

international trade

(

definition |

chart |

source

) deficit widened to $33.3 billion in January from a revised figure of $33.2 billion in December. The spread is the largest since September. Economists polled by

Reuters

had predicted the gap to come in at $33.19 billion.

The Japanese yen is likely to fall further in value due to the lowering of interest rates by the

Bank of Japan

and the expansion of the nation's money supply after the intended government bond buyback. This may increase Japanese exports and therefore bring more imports into the U.S., thus possibly widening its deficit even more over the next few months.

The

BTM-UBSW Weekly Chain Store Sales Index

(

definition |

chart ) fell 0.3% for the week ended March 17 after having dropped by 0.7% during the previous week. This is its fourth consecutive decrease, and there hasn't been such a prolonged downturn since Sept. 1999. Department stores are hoping that sales, which have been dipping, will pick up by the Easter weekend. Discount outlets may cut prices at the end of this month to boost customer traffic.

The

Redbook Retail Average

(

definition |

chart ) for March rose 2.3% compared to the year-ago number. Merchandisers had targeted a 3.2% increase. It is ahead of February by 0.5%, but still below the 1.4% target for February-to-March performance. Sales were better at discount stores than at department or chain stores. The March retail month ends on April 7, so better performance over the next two weeks may drive the gauge higher.

The latest

federal budget

(

definition |

chart |

source

) release indicates a deficit of $48.168 billion for the month of February, after enjoying a surplus of $76.379 billion in the previous month.

Currency and Commodities

The dollar fell against the yen and the euro. It lately was worth 122.22 yen, down from 123. The euro was worth $0.9090, up from $0.8987. For more on currencies, see

TSC's

Currencies column.

Crude oil for April delivery at the

New York Mercantile Exchange

fell to $25.70 a gallon from $26.15.

The

Bridge Commodity Research Bureau Index

rose to 214.80 from 214.26.

Gold for April delivery at the

Comex

rose to $260.50 from $259.80.