BOSTON – Mutual fund investors were buying stock funds at the end of 2010. But they were trying to avoid risk through most of the year, as bond funds took in money at the second-fastest annual rate ever.

A tally Wednesday by industry consultant Strategic Insight shows investors added $222 billion more to bond funds than they withdrew. The record for money flowing into bond funds came in 2009, when investors added a net $350 billion. That followed a year when stocks suffered their worst decline since the Great Depression.

Investors responded by seeking the relative safety of bonds. But with the economic recovery gaining momentum, fear of rising interest rates has recently cut into bond returns. Two-thirds of the bond fund categories tracked by Lipper Inc. suffered losses in the fourth quarter, as rate fears sent bond prices down and yields up.

Investors typically sell off when prices fall, and December was no exception. Investors pulled a net $24 billion from bond funds last month, according to Strategic Insight. It was the biggest monthly movement out of bond funds since the peak of the financial crisis in October 2008. It was also the second consecutive month that more money was pulled out of bond funds than came in. About $1 billion exited in November.

But Strategic Insight isn’t ready to declare that investors are ready to give up on bonds. Research Director Avi Nachmany said his New York-based company still expects demand to rebound in the first half of this year. That’s because many categories of bonds offer attractive yields compared with those of bank accounts and money-market funds, which are near record lows.

“For some, the focus on income and risk aversion will persist through 2011,” Nachmany said.

Many bond investors nevertheless embraced risk last month. Flows were positive for high-yield funds, which hold bonds that typically earn high rates of return, with greater risk of volatility. Those funds returned an average 3.5 percent last quarter, according to Lipper.

That compares with an 11.4 percent fourth-quarter gain for the average U.S. stock fund.

With such strong returns, flows into stock funds have recently begun to shift. For the full year, investors added a net $23 billion into stock funds.

Yet despite an average 17 percent return last year for the average U.S. stock fund, they weren’t attracting money. They saw nearly $49 billion flow out. The overall flow of money was positive for stock funds because investors were putting their money in foreign stock funds, which drew in a net $72 billion.

There’s been a flow of money into foreign stock funds for seven straight months. This reflects the stronger economic growth prospects many investors see in the world’s emerging markets, and a desire to diversify portfolios beyond U.S. financial markets.

Still, there are signs that U.S. investors are warming up to domestic stocks. Through most of 2010, the rate at which cash was pulled out of U.S. stock funds slowed. For one week in late December, flows into U.S. stock funds even turned positive, according to the Investment Company Institute, an industry association.

“It is clear that stock investor sentiment is slowly improving,” Nachmany said.

NEW YORK – A surprising jump in hiring sent bond prices lower and lifted the dollar Wednesday. The Dow Jones industrial average edged higher for the third day in a row.

A survey from payroll processor ADP found that private companies added 297,000 jobs last month, far above the 100,000 economists expected. The report is the first chance for investors to see how strong the job market was in December.

The next look comes Friday morning when the Labor Department releases its monthly report on total U.S. payrolls and the unemployment rate. Economists expect the rate will dip to 9.7 percent from 9.8 percent.

The unexpectedly high jobs survey from ADP suggests that the Labor Department report will also be strong. But economists cautioned against reading too much into the ADP figures, which also take into account weekly figures on claims for unemployment insurance, said Thomas Simons, market economist at Jefferies & Co.

“When the ADP number comes in strong, it doesn’t mean all the other labor reports will come in strong,” Simons said. “But it does show that the labor market is improving. You have to take all these numbers together and come up with a mosaic view.”

Signs that the economy is improving weakened demand for low-risk investments. Treasurys prices slid, pushing their yields higher. The yield on the 10-year Treasury note rose to 3.49 percent from 3.33 percent late Tuesday. The yield helps set interest rates on many kinds of loans including mortgages.

The higher rates in the Treasury market helped push the dollar up against other currencies. The dollar rose 1.1 percent against an index of six other currencies.

The Dow gained 35 points, or 0.3 percent, to 11,727 in afternoon trading.

The Standard & Poor’s 500 index rose 6, or 0.5 percent, to 1,276. The Nasdaq rose 16, or 0.6 percent, to 2,697.

Financial companies led the 10 groups that make up the S&P index with a 1 percent gain. Utilities did the worst, losing 0.7 percent.

American Express Co. rose 2.8 percent to $44.98, the largest increase among the 30 stocks that make up the Dow. Intel Corp. had the largest fall, slumping 0.9 percent to $20.96.

A survey from the Institute for Supply Management showed that service companies reported more new orders and higher prices last month. The ISM’s monthly index measuring the economic strength of U.S. service providers rose to its highest level since May 2006.

Service providers such as retailers, hotels, banks and construction companies employ about 80 percent of the country’s work force. But their growth has lagged behind manufacturers since the recession ended June 2009.

Qualcomm Inc. rose 2 percent to $52 after the technology company said it had agreed to buy chip maker Atheros Communications Inc. for $3.2 billion in cash. The deal is aimed at giving Qualcomm, which makes chips for cell phones, a foothold in the growing market for tablet computers.

BJ’s Wholesale Club Inc. fell 1.8 percent to $46.15 after the retailer said it would cut jobs and close five stores.

NEW YORK (Reuters) – Money flows to global equity and other stock funds accelerated during the fourth quarter, signaling a possible twist in 2011 from the record investments made in bond portfolios over the last year, according to a report published by EPFR Global on Friday.

Funds focused on the United States, Japan and other developed market stocks collected $28.44 billion from investors for the fourth quarter, marking a significant shift from full-year data that showed outflows of $62.36 billion, the report said.

Overall, EPFR Global-tracked equity funds took in $30 billion in 2010 for their best year since 2006, led by a record $92 billion earmarked for emerging market stock portfolios, it said.

“Emerging markets will stay strong but you will see a lot more interest in domestic stocks” in 2011, said Keith Springer, president of Springer Financial Advisors in Sacramento, California. The United States will likely lead developed nations in terms of return, he predicted.

“Individual investors are starting to be a little nervous about missing the upside in stocks” after dedicating much of their portfolios to bonds over the past few years, he said.

The year is also ending with record flows into global and emerging market bond funds as well as commodity and real estate funds, the report said.

Global bonds saw inflows of $372.46 billion this year — including $29.81 billion in the fourth quarter — compared with $302.65 billion in 2009, EPFR said. But they posted outflows in the past six of seven weeks for their poorest showing since the financial crisis deepened in late 2008, it said.

“The fund groups that set records were, however, not necessarily the ones that will carry momentum into the new year,” EPFR Global said in a statement.

U.S. bond funds saw $7.3 billion fall away in the last quarter amid concerns over the fiscal health of towns, cities and public works, EPFR said. U.S. bond funds drew $178.40 billion this year, down from $214.09 billion the year before.

Specific sectors showing greater investor interest include equity funds focused on Japan and Europe the Middle East and Africa, EPFR said. Financial, technology and balanced funds also saw flows accelerate in the fourth quarter, it added.

For the second straight year, commodities funds led inflows among sectors, with $29.33 billion, EPFR said. In 2009, the sector took in $19.95 billion.

Commodities ended the year with another week of inflows as copper prices climbed to new highs, EPFR said.

(Editing by Gary Crosse and Leslie Adler)

NEW YORK – Expectations that a tax cut package will pass the Senate and a round of corporate deals pushed stocks higher Monday. Treasury bond yields fell after briefly touching their highest levels since June.

Large deals announced Monday include General Electric Co.’s $1.3 billion acquisition of British oilfield company Wellstream Holdings PLC and Dell Inc.’s $960 million purchase of network storage company Compellent Technologies Inc. Shares of GE fell 0.2 percent to $17.75. Shares of Dell fell 3.3 percent to $13.45.

The tax cut compromise brokered by the White House and Congressional Republicans was scheduled for its first vote in the Senate on Monday afternoon. Lawmakers expect it to pass easily.

If enacted, the package will extend tax cuts passed during the Bush administration for all income levels for another two years. It will also extend unemployment benefits and put in place a one-year reduction in Social Security taxes.

Economists expect the nearly $900 billion tax package to boost economic growth and increase the size of the budget deficit. House Democrats have pledged to not support the measure unless tax rates rise for the nation’s wealthiest estates.

In midday trading, the Dow Jones industrial average rose 40.64, or 0.4 percent, to 11,450.96. If the index closes above 11,440.08 it will set a new high for the year. It last closed at that level Nov. 5.

The Standard and Poor’s 500 index rose 4.93, or 0.4 percent, to 1,245.33. The S&P 500 closed Friday at 1,240.40, the third straight day that it reached a new high for the year.

The Nasdaq composite index rose 2.79, or 0.1 percent, to 2,640.33. It has closed at new annual highs for the last 8 days.

The tax plan has crushed the prices of Treasury bonds since it was announced last week. The yield of 10-year Treasurys rose to 3.36 percent early Monday before falling to 3.27. The bond yielded 2.4 percent in mid-October. Bond prices move in the opposite direction of their yields.

“It looks like the big trade going on right now is that money is working its way out of bonds and into stocks,” said Ryan Detrick, a senior strategist at Schaeffer’s Investment Research. “We think that is only going to continue as the economy starts looking better.”

World stock markets rose. China’s benchmark Shanghai Composite Index gained 2.8 percent after Chinese authorities surprised investors by not raising interest rates. Investors had anticipated an interest rate hike to combat high inflation.

Blue chip stocks in Europe rose 0.2 percent. The dollar fell 0.9 percent against an index of six currencies. Commodity prices rose 0.9 percent.

In corporate news, Hewlett-Packard Co. fell 1.4 percent to $41.96 after Goldman Sachs gave the hardware company a sell rating. Goldman’s analysts see tablet computers, such as Apple Inc.’s iPad, taking business away from PCs.

NEW YORK – Expectations that the Senate will vote to extend tax cuts pointed to early gains in the stock market Monday. Treasury bond yields rose to their highest levels since June.

The tax cut compromise brokered by the White House and Congressional Republicans was scheduled for its first vote in the Senate on Monday afternoon. Lawmakers expect it to pass easily.

If enacted, the package will extend tax cuts passed during the Bush administration for all income levels for another two years. It will also extend unemployment benefits and put in place a one-year reduction in Social Security taxes.

Economists expect the nearly $900 billion tax package to boost economic growth and increase the size of the budget deficit. House Democrats have pledged to not support the measure unless tax rates rise for the nation’s wealthiest estates.

The tax plan has crushed Treasury bonds since it was announced last week. The yield of 10-year Treasurys rose to 3.36 percent, up from 3.33 percent late Friday. The bond yielded 2.4 percent in mid-October. Bond prices move in the opposite direction of their yields.

World stock markets rose. China’s benchmark Shanghai Composite Index gained 2.8 percent after Chinese authorities surprised investors by not raising interest rates. Investors had anticipated an interest rate hike to combat high inflation.

Blue chip stocks in Europe rose 0.4 percent.

In pre-market trading, the Dow Jones industrial average rose 34, or 0.3 percent, to 11,442. Standard and Poor’s 500 futures gained 3.10, or 0.3 percent, to 1,239. Nasdaq 100 futures rose 4.75, or 0.2 percent, to 2,219.75.

The S&P 500 closed Friday at 1,240.40, the third straight day that it reached a new high for the year.

There are no major economic reports or corporate earnings announcements scheduled for Monday.

PARIS (Reuters) – The markets for equities and government bonds have returned to their long-term pattern of moving in opposite directions as a result of a U.S. tax cuts deal that is expected to boost spending there.

News of the deal fueled optimism for the U.S. economic outlook while sparking inflation concerns, triggering a sell-off in bonds and sending stocks to two-year highs — ending a period in which the two asset classes have tracked each other.

The two asset classes had both been rallying over the past few months, prompting concerns that one of them was getting ripe for a swift change of direction.

“Government bond prices have not been reflecting the economic fundamentals, but rather exceptional measures put in place as well as their safe-haven characteristics,” Christophe Donay, head of strategy at Pictet, said.

“People shouldn’t underestimate the risk of a major correction if the economy emerges from the crisis next year.”

Both asset classes have been boosted by the ample liquidity and expectations of further quantitative easing from the Federal Reserve, but this week’s deal in Washington to extend tax cuts sparked sharp losses in U.S. Treasuries, hit by worries of inflation and a swelling U.S. budget deficit.

After being positive for most of November, the correlation between 10-year U.S. Treasury futures and the S&P 500 (.SPX) has fallen back into negative territory this month, at -0.26 on a rolling 25-day average on Thursday.

Excluding a blip in April during the heat of the Greek debt crisis, the correlation has been oscillating between -0.35 and -0.82 percent this year, before starting to rise in mid-October.

The correlation between German Bund futures and the STOXX Europe 600 index (.STOXX) hit -0.43 on Thursday, its lowest level since late October, and following a foray in positive territory in November. Excluding April, the correlation has been bouncing between -0.25 and -0.89 this year.

BOND SHOCK: A deal between President Barack Obama and Republican leaders to extend tax cuts pushed bond prices sharply lower. Traders expect the deal to boost economic growth and increase the size of the budget deficit.

NEW HIGH: The Standard & Poor’s 500 index closed at a new yearly high of 1,228.28. It reached its last high on Nov. 5. The index is now up 10.1 percent for the year.

LESS GOLDEN ARCHES: McDonald’s Corp. fell 1.6 percent to $78.74 after reporting November sales figures that fell short of analysts’ expectations.

NEW YORK (Reuters) – Stocks were little changed on Wednesday, weighed by gains in the dollar and higher bond yields, but analysts said they expect the market to regroup before attempting a rally into year-end.

Benchmark yields hovered at their highest in six months, while the dollar index (.DXY) gained 0.4 percent as the deal to extend tax cuts intensified worries about inflation and the costs of the government’s debt burden.

Higher bond yields make it more expensive for consumers and businesses to borrow, while stocks and the dollar have moved in opposite directions of late. A rise in yields and the dollar could also draw money away from equities.

McDonald’s Corp (MCD.N) dragged on the Dow, falling 2.1 percent to $78.61 after reporting weaker-than-expected global sales for November.

Analysts expect the market to trade sideways for a few days before mounting a final leg up going into the end of the year.

“There’s still a lot of institutions and mutual funds that are underinvested and underperforming this market, so any and all pullbacks will be short-lived as people continue to push money in and try to catch up with the market,” said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research in Cincinnati, Ohio.

The Dow Jones industrial average (.DJI) edged down 16.92 points, or 0.15 percent, at 11,342.24. The Standard & Poor’s 500 Index (.SPX) was off 1.57 points, or 0.13 percent, to 1,222.18. The Nasdaq Composite Index (.IXIC) added 1.09 points, or 0.04 percent, to 2,599.58.

The S&P faces resistance at the 1,228 level, which represents the 61.8 percent Fibonacci retracement of the 2007-2009 bear market slide, a key technical indicator. The level was confirmed as strong resistance Tuesday after the index broke through during the session but closed below it.

The S&P 500 hit a two-year intraday high on Tuesday, but closed with a small gain.

Steady economic improvement should fuel stock gains through 2011, according to a Reuters poll of investors and strategists, but international concerns could limit advances in the second half of the year.

(Editing by Jeffrey Benkoe)

NEW YORK – The compromise backed by President Barack Obama and Republican leaders on extending tax cuts for two years is setting up a rocky start Wednesday on Wall Street.

Investors expect the tax-cut deal to boost economic growth but also widen the budget deficit.

Treasury prices are dropping in early Wednesday trading, sending their yields higher for a second straight day. The yield on the 10-year Treasury note rose to 3.18 percent, the highest level since June.

That means higher borrowing costs for the U.S. government when the Treasury auctions off $21 billion in 10-year notes later Wednesday.

Stocks appeared headed to a mixed opening.

Ahead of the opening bell, Dow Jones industrial futures are down 6 points, or 0.05 percent, to 11,349. S&P 500 index futures are up 0.7, or 0.06 percent, to 1,224. Nasdaq 100 futures are up 4, or 0.2, to 2,194.

The deal which would also extend jobless benefits had sent stock prices higher for much of Tuesday, but the rally faded by late afternoon. The Standard & Poor’s 500 index closed within two points of this year’s high hit Nov. 5.

Treasury bonds, however, were crushed, turning in one of their worst days this year. The yield on the benchmark 10-year Treasury note jumped to 3.13 percent from 2.93 percent late Monday.

The dollar is up 0.5 percent on Wednesday against an index of six other currencies.

In corporate news, Costco Wholesale Corp. reported its fiscal first quarter profit jumped 17 percent with higher revenue from membership fees and international stores. The earnings beat analysts’ forecasts of 69 cents per share, according to a survey by Thomson Reuters.

Home Depot Inc. lifted its earnings guidance for the second time in two months. The retailer now expects net income from continuing operations to be $1.97 per share in fiscal 2010, up from prior guidance of $1.94 per share.

Meanwhile, Fortune Brands Inc. said it plans to split into three separate companies, keeping its liquor business led by Jim Beam bourbon while shedding the businesses that make Titleist golf balls, Moen faucets and Master Locks.

NEW YORK – Stocks and government bonds fell Tuesday as commodities rallied to two-year highs.

Silver, soybeans and copper jumped to levels last seen in October 2008 as investors moved money into hard assets in anticipation that a massive economic stimulus plan announced by the Federal Reserve last week will continue to weaken the dollar. Investors are expecting that commodities will hold their value even if the dollar falls.

The Fed plans to buy $600 billion in U.S. government bonds over the next six months in an effort to push interest rates even lower and encourage borrowing and spending. It’s a tactic called quantitative easing, one that the Fed used successfully in 2008 to restore confidence in financial markets at the height of the credit crisis.

“The market is still being driven by the Fed’s actions and it will be for a while,” Dirk van Dijk, senior equity strategist at Zacks.com.

Treasury prices fell despite a strong auction of 10-year notes. Investors are concerned that demand may be weak for 30-year bonds in an auction upcoming Wednesday. The price of the 30-year bond was down sharply, losing about two full points, or $2 per $100 in face value. Its yield rose to 4.23 percent, the highest level since June 10.

The 30-year bond wasn’t one of the maturities being heavily targeted by the Fed’s purchasing program announced last week, and its long maturity makes it more sensitive to inflation than shorter-term notes.

Many investors worry that the Fed’s bond-buying program could lead to a jump in inflation down the line, which would erode the value of all bonds since their fixed payouts would become worth less over time. With the Fed now focused on encouraging some inflation, “it might be hard for investors to convince themselves to buy” at Wednesday’s auction, said John Briggs, a fixed income analyst at RBS.

The dollar has been falling against other currencies in anticipation of the Fed’s stimulus program, but it gained 0.9 percent against an index of other currencies Tuesday as new troubles emerged in Ireland, one of the weaker countries that use the euro, Europe’s shared currency.

Investors are concerned that Ireland’s government will not be able to pass additional spending cuts and will have to ask for financial assistance. Greece, another member of the euro club, was forced to seek a bailout from other European countries in April after investors dumped the countries bonds in the wake of a fiscal crisis there.

The Dow Jones industrial average fell 60.09, or 0.5 percent, to 11,346.75. The broader Standard & Poor’s 500 index fell 9.85, or 0.8 percent, to 1,213.40, while the technology-focused Nasdaq composite index fell 17.07, or 0.7 percent, to 2,562.98.

Every industry group within the S&P 500 fell. Financial shares, which fell 2.2 percent, were the worst performing industry group.

Gold settled at $1.410.10 an ounce, up $6.90. The precious metal is hovering near record levels in dollar terms but is still well below its peak in the early 1980s after accounting for inflation.

The weakening dollar has been benefiting gold as investors seek other assets seen as safe places to park money. Some gold investors see the metal as a hedge against national currencies losing their value as a result of inflation.

Silver rose, jumping 5.4 percent to settle at $28.906 an ounce. The metal’s large gains may be a result of traders buying silver because it had fallen below its typical price relationship with gold. Gold usually trades at 50 times the price of silver, said Rick de los Reyes, a metals and mining analyst at T. Rowe Price.

“Gold is someone’s first instinct when they are buying for all of the reasons they’re buying gold right now, and silver usually lags somewhat,” he said. Silver, which has a greater use for industries than gold, is rising alongside other industrial metals like platinum and copper.

In corporate news, Chevron Corp. shares fell 1.5 percent after announcing a deal to buy the natural-gas producer Atlas Energy for $4.3 billion, following other natural gas deals by rival energy giants Exxon Mobil Corp. and Royal Dutch Shell PLC.

Shares of Dean Foods Co. sank 17.9 percent after the country’s largest dairy company announced disappointing results. The company has slashed prices to compete with supermarkets selling milk under their own labels. Dean Foods shares have slumped 53 percent for the year, making it one of the worst performing stocks in the S&P 500 index.