U.S. stocks down on weak outlooks

NEW YORK (Reuters) - U.S. stocks fell on Tuesday, as outlooks by companies like FedEx Corp (FDX.N) pointed to more trouble in the economy, and U.S. Treasury yields stayed near five-decade lows on bets the Federal Reserve will keep long-term rates low to avert a deep and sustained recession.

Oil prices fell after the U.S. government forecast that the slowing world economy would shrink global oil consumption this year and next, marking the longest demand contraction since the early 1980s.

The dollar rose against most currencies, as bleak economic news in Germany and Britain pressured the euro and sterling. Britain reported factory output shrank in October and property sales are at a record low. Although Germany reported improved investment sentiment in December, an assessment of current conditions fell.

And in the United States, there was further evidence the recession was in full swing, as companies announced more layoffs and retailers reported anaemic sales during the crucial year-end holiday period.

The worsening economy should keep inflation in check and allow the Federal Reserve to move towards quantitative easing, an ultra easy monetary approach the Bank of Japan adopted in the 1990s in a bid to avert a deflating economy, analysts said.

"The Fed is going to keep long-term borrowing costs low which is going to keep the curve flat," said T.J. Marta, fixed income strategist at RBC Capital Markets in New York.

The Fed is widely expected to lower key short-term rates by at least half a percentage point to 0.50 percent at its policy meeting next week.

In the stock market, the Dow and the S&P 500 lost ground as doubts about whether the market would be able to sustain its recent recovery bid surfaced.

A slide in biotechnology shares tripped the Nasdaq into negative territory, offsetting a rise in shares of big-cap technology stocks, including Apple (AAPL.O).