Treasuries finished lower after having inched up during mid-session. They had begun the morning still sagging from yesterday's story suggesting a moderate rather than drastic cut in interest rates at the end of the month. But that piece of news lost credibility as the day wore on, and analysts now expect better from the Federal Reserve Chairman Alan Greenspan's address to the Senate Budget Committee tomorrow.

"There really wasn't much to move the Treasuries. The strong dollar had been helping out earlier, but now that is not enough to pull up the market," said John Canavan, Treasury market strategist at

Stone & McCarthy Research Associates

, noting that stocks kept a very low profile as well.

"There was little sustenance on real bids. Greenspan's speech tomorrow is the key right now," he added.

The benchmark 10-year

Treasury note fell 6/32 to 103 8/32, raising its yield 2 basis points to 5.311%.

The 30-year

Treasury bond fell 5/32 to 108 10/32, raising its yield 1.6 basis points to 5.665%.

Although bond activity may have been imperceptible, traders did have something to go on, even if to simply adjust portfolios. As Canavan pointed out, the Treasury department announced a $1 billion buyback of its outstanding callable issues, and

Market News International

backtracked on its report of a 25-basis point cut at the

FOMC meeting next week.

Also imminent is a $10 billion sale of two-year Treasury notes as well as a $7.7 billion credit offering from Ford Motor Credit, part of

Ford Motor

(F) - Get Ford Motor Company Report

. Such infusion very likely depressed the buying as money managers held on to cash reserves for weightier procurements tomorrow.

Greenspan's forthcoming speech should shed more light on the extent of the interest rate correction. Market players have been depending on a half-percentage point cut in the

federal funds rate, hoping that the Fed sees enough weakness in the economy to go that far. If the central bank indeed fulfills their wish, it would be the second 50-basis point reduction this month, following the first one on Jan. 3.

Most analysts, of course, feel that the Fed's move three weeks ago was overdue and should have taken place last quarter.

"Hopefully, Greenspan's comments will clarify whether the latest cut is going to be 25 or 50," said Stone & McCarthy's economist, Kenneth Kim. "Our call is for a 50-basis point correction that targets the fed funds rate at 5.5%."

He justifies his prediction on a depressed manufacturing sector and falling consumer confidence. "There are clearly recession-like conditions in manufacturing. The

Philadelphia Fed Index (

definition |

chart |

source

) number was really down, and the auto sector is weak."

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Consumer spending may improve sooner than some expect. With mortgage rates remaining at low levels, the latest housing data released this morning showed home refinancing at fairly active levels. In the past, homeowners have directed the liquidity gained from their mortgage adjustments to other consumer purchases. While Kim agreed this could happen once again and "limit some of the downturn," he cautioned that any beneficial effects would take time to materialize.

There is also speculation about how Greenspan will react to the $1.6 trillion tax cut proposed by the Bush administration.

As Canavan explains, the tax plan is based on a 10-year surplus, with the projected upside not showing up until the later years. It would therefore be a difficult plan to implement up front, he said. He does foresee a limited effect if the breaks are provided on a more retroactive basis. "It would help the economy slightly but even then I don't see a huge impact on corporate earnings, " he said.

The Fed for its part has been unenthusiastic about such schemes. Said Kim: "During the last year, Greenspan indicated that the federal surplus should be utilized to reduce debt rather than bring down taxes. But a tax break has been a main part of Bush's agenda, and Greenspan probably won't say anything against it. After all, Bush is the President."

At the

Chicago Board of Trade

, the March

Treasury futures contract fell 5/32 to 102 14/32.

Economic Indicators

In economic news, the

Mortgage Applications Survey

(

definition |

chart |

source

) showed a slight decrease in new mortgage activity as the Purchase Index slipped to 332.6 in the week ended Jan.19, from 332.9 the previous week. The Refinancing Index remained robust at 2123.3 for the same period, though it is down from 2800.6. Homeowners continue to take advantage of lower mortgage rates to seek better terms. They may also, as happened during the last refinancing boom of 1998-99, use the excess liquidity to make purchases in other consumer sectors, and thus shore up the economy.

Currency and Commodities

The dollar rose against the yen and the euro. It lately was worth 117.78 yen, up from 117.01. The euro was worth $0.9214, down from $0.9376. For more on currencies, see

TSC's

Currencies column.

Crude oil for February delivery at the

New York Mercantile Exchange

fell to $29.05 a barrel from $29.57.

The

Bridge Commodity Research Bureau Index

fell to 228.39 from 229.33.

Gold for March delivery at the

Comex

fell to $264.60 an ounce from $266.70.