U.S. stocks up, bonds slip on rates, mortgage plan

By Herbert Lash

NEW YORK (Reuters) - U.S. stocks gained and bond prices declined on Friday as financial markets were moved by convictions the Federal Reserve will cut interest rates in two weeks and news that the U.S. government is working on plans to help homeowners recover from the subprime mortgage crisis.

The technology-laced Nasdaq fell after a disappointing outlook from Dell Inc (DELL.O) but mortgage lenders, bond insurers and homebuilding stocks that have been battered by the fallout over subprime lending posted double-digit gains.

Investors turned from the perceived safe-haven of government debt, pushing down bond prices, after Federal Reserve Chairman Ben Bernanke bolstered rate cut hopes.

The dollar was on track for its biggest weekly gain in more than a year against major currencies and oil fell, dipping below $90 a barrel.

Talk the U.S. Treasury Department was finalizing a plan with mortgage industry leaders that would hold interest payments steady for many subprime borrowers facing higher rates and possible foreclosure buoyed stocks and cut into bonds.

Many teaser rate loans are now entering default, which gave investors who have been spooked by the crisis some relief.

"This is a little bit of the extension on the relief that if credit concerns can ease, then maybe we're out of the woods and a lot of the write-downs are probably over," said David Goerz, chief investment officer at HighMark Capital Management in San Francisco.

The Dow Jones industrial average .DJI was up 13.41 points, or 0.10 percent, at 13,325.14. The Standard & Poor's 500 Index .SPX was up 6.01 points, or 0.41 percent, at 1,475.73. The Nasdaq Composite Index .IXIC was down 15.03 points, or 0.56 percent, at 2,653.10.