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Slumping Treasury bond prices send stocks downward

NEW YORK — The Dow Jones industrial average fell nearly 175 points Wednesday, erasing most of a rally from the day before as a jump in government bond yields fanned worries that higher interest rates will sap strength from the economy before it has a chance to recover.

A steep drop in the price of the benchmark 10-year Treasury note pushed its yield up to 3.72 percent, up from 3.55 percent late Tuesday and the highest level since last November. That increase touched off fears that the government won’t be able to hold down interest rates long enough to allow the economy to recover.

Along with increasing borrowing costs for the government, rising yields on Treasury debt could hamper an economic recovery since they are used as benchmarks for home mortgages and other kinds of loans. Higher mortgage rates could delay a recovery in the battered housing market.

The drop in bond prices followed a well-received auction of $35 billion in five-year notes, part of the $101 billion in debt the government is issuing this week. Some traders fear demand could weaken as the government issues massive amounts of debt to fund its financial and economic rescue programs.

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