Prices of AAA-rated tax-free debt were up sharply in active secondary-market trading and were sufficient to trim yields by as many as 7 basis points, according to a preliminary reading by Municipal Market Data.

"Treasuries are piercing or near piercing key resistance levels and that says interest rates are going lower. That's dictating what's going on in munis," said Managing Director Kenneth Naehu of Bel Air Investment Advisors in Los Angeles.

The US 30-year Treasury bond extended its gain to a point, with its yield easing to 4.02 percent from 4.08 percent late on Monday.

Tuesday was the second straight day of strong gains for munis, a domestic market US states and local governments use for financing roads, schools and other infrastructure.

Treasuries have been rallying for four trading days and US stocks have been declining for six trading days.

Copyright Reuters, 2011