NEW YORK - US Treasury prices plummeted on Monday, driven by fears a price bubble is about to pop in the face of a massive wave of new debt, while fresh details of a planned US stimulus package helped firm up the dollar.

US stocks fell after an early rally on better-than-expected December sales at battered General Motors failed to hold as investors booked profits from last week's run-up.

Oil prices rose more than 5 per cent as Israel's deepening incursion into Gaza and a dispute between Russia and Ukraine over natural gas heightened worries of supply disruptions.

Prospects for a swelling supply of government debt drove US and euro-zone prices down. The US Treasury said it would sell US$16 billion (S$23.5 billion) of reopened 10-year notes and US$30 billion in three-year notes this week.

While the issuance was broadly in line with market forecasts, it underscored a looming surge of debt to fund government efforts to rescue the financial system.

US President-elect Barack Obama plans US$310 billion in tax cuts as part of a rescue package of up to US$775 billion, senior Democratic aides said on Sunday.

German Chancellor Angela Merkel met her Social Democrat (SPD) coalition partners to discuss a second fiscal stimulus deal worth up to 50 billion euros (S$100 billion).

The 30-year Treasury bond US30YT=RR fell more than four full points in price, pushing its yield above 3 per cent, a dramatic rise from a record low near 2.52 per cent on Dec 18.

But the dollar rose, with not all investors taking such a dim view as the bond market's. The euro slipped to three-week lows versus the dollar, with weaker-than-expected Italian and Spanish inflation data and tax cuts in Germany expected to pressure the European Central Bank to cut rates further soon.

'The combination of tax cuts, infrastructure spending and job creation under the Obama stimulus package takes out some of the pain from the economic recession we're in,' said Ron Simpson, director of currency research at Action Economics in Tampa, Florida.

'At some juncture the US efforts would turn the economy around quicker than many of the other countries and that should be dollar-positive,' he added. -- REUTERS