By Kim-Mai Cutler and Wes Goodman Nov. 10 (Bloomberg) -- Treasuries fell as stocks and commodities rose after China announced a $586 billion economic- stimulus package and the U.S. prepared to start its biggest debt-sale program in four years. Five-year notes led the declines as the MSCI World Index climbed for a second day and prices for copper and oil gained after China pledged ``fast and heavy-handed investment'' in the economy, curbing demand for the safest assets. The U.S. begins its so-called quarterly refunding today with a $25 billion sale of three-year notes, part of a $55 billion program of sales planned by year-end, the most since 2004. ``It's going to be quite tricky for the market to take down all this supply,'' said Jason Simpson, a fixed-income analyst at Royal Bank of Scotland Group Plc in London. ``Equity markets have also pushed higher. An environment where risky assets do well is not generally one where bonds tend to prosper.'' Benchmark two-year note yields climbed 4 basis points to 1.36 percent as of 10:15 a.m. in London, according to BGCantor Market Data. The 1.5 percent security maturing October 2010 fell 3/32, or 94 cents per $1,000 face amount, to 100 8/32. The yield on the 10-year security increased 4 basis points to 3.83 percent. A basis point is 0.01 percentage point. The five-year note yield rose 6 basis points to 2.62 percent. Yields move inversely to bond prices. China will increase spending on housing, roads, railways and airports, following Treasury Secretary Henry Paulson's $700 billion plan to rescue U.S. banks. Copper, Stocks Copper earlier jumped more than 8 percent and equities rose, with the MSCI World Index of shares advancing 1.6 percent, on optimism China's 4 trillion yuan package may help spur growth around the world. Futures on the Standard & Poor's 500 Index gained 2.3 percent amid speculation American Internatioanl Group Inc. may get an expanded bailout package from the U.S. The U.S. is reviving its three-year note after an 18-month suspension as it increases debt auctions to pay for the Treasury Department's economic plan. The government also wants to sell $20 billion in 10-year notes Nov. 12 and $10 billion in 30-year bonds Nov. 13. The previous three-year sale in May 2007 was for $14 billion. It drew a yield of 4.574 percent and investors bid for 2.39 times the amount of debt offered. The security yielded 1.21 percent today. Trading may be less than usual today. The Securities Industry and Financial Markets Association recommends trading close at 2 p.m. in New York and stay shut worldwide tomorrow because of the U.S. Veterans Day holiday. Bond Returns Government securities returned 5.6 percent this year and 9.06 percent for all of 2007, according to Merrill Lynch & Co.'s U.S. Treasury Master index. Demand for the safest assets is being fueled by the risk of a global recession after a U.S. housing slump led to a seizure in credit markets. ``The market has completely neglected some of the bad economic data in recent weeks,'' said Alessandro Tentori, a fixed-income strategist at BNP Paribas SA in London. ``Once supply is sorted out, we expect a steeper yield curve. Two-year notes have rallied significantly so there isn't too much room for them to head higher. We would be looking for more movement in 10-year yields.'' The U.S. economy shed more jobs in October than forecast, a government report showed last week. Payrolls shrank by 240,000 workers, the Labor Department said Nov. 7. Economists surveyed by Bloomberg News had forecast a drop of 200,000. The jobless rate jumped to 6.5 percent. U.S. Recession There's now no doubt a recession in the U.S. is underway, Robert Hall, who heads the National Bureau of Economic Research's business-cycle dating committee, said in an interview Nov. 7. Goldman Sachs Inc. forecast the deepest U.S. recession since 1982, with the economy contracting 3.5 percent in the fourth quarter and 2 percent in January-March next year. It will take at least 18 months to turn around the U.S., even if President-elect Barack Obama ``does everything perfectly,'' Nobel Prize-winning economist Joseph Stiglitz wrote in the Washington Post yesterday. The difference between yields on two- and 10-year notes, known as the yield curve, may widen to a record 3 percentage points from 2.44 percentage points now, according to strategists at Morgan Stanley and Credit Suisse Group AG. Shorter-term yields are falling as investors bet the Federal Reserve will reduce its target rate for overnight loans between banks to spur the shrinking U.S. economy. Ten-year yields are likely to rise as the government increases its long- term debt sales, the strategists said. Steepening Curve The difference between two- and 10-year yields reached a record of 2.74 percentage points in 2003 after the Fed finished a series of 13 rate reductions. Typically, the spread is steepest as the central bank stops lowering borrowing costs and investors anticipate an economic recovery, according to Tony Crescenzi, chief bond strategist at Miller Tabak & Co. LLC in New York. A weekly survey of fund managers by Ried, Thunberg & Co., an economic advisory company in Jersey City, New Jersey, shows investors are bearish on U.S. government securities. The measure of money manager sentiment through the end of December held at 43 for the seven days ended Nov. 7 from the week before. Readings below 50 indicate investors expect bonds to decline. The company surveyed 29 fund managers overseeing $1.43 trillion. Borrowing costs dropped worldwide in the past month after central banks lowered interest rates and governments pledged as much as $3 trillion of emergency funds to tackle a collapse in trust among banks. The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, was 2.01 percentage points, compared with 4.64 percent on Oct. 10, the most since Bloomberg began compiling the data in 1984. It was 0.18 percentage point in February 2007. To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net; Kim-Mai Cutler in London at kcutler@bloomberg.net

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