TREASURIES-Edge up in Asia after battering on stock rally

TOKYO, April 17 (Reuters) - U.S. Treasuries edged up in Asia on Thursday but nursed losses from the previous day when the market was hit by a jump in Wall Street stocks after reassuring quarterly earnings from top banks and other blue-chip companies.

Some portfolio managers shifted funds to Treasuries after benchmark yields reached a two-month high the previous day, despite data showing a deeper retrenchment in housing starts and a rise as expected in consumer prices.

The rebound in stocks drove the S&P 500 .SPX up 2.3 percent and helped cool some expectations the Federal Reserve will cut rates by a half percentage point rather than a quarter point from the current 2.25 percent at its meeting later in the month.

Investors will scour more results from top U.S. banks later in the day, including Merrill Lynch -- one of the hardest hit by losses from holdings of subprime mortgages.

On Wednesday the Wall Street Journal reported that Merrill would write down the value of assets by another $6 billion to $8 billion and mark a third straight quarterly loss.

Stocks were boosted in part as the results from top U.S. banks JPMorgan Chase and Wells Fargo showed they were coping relatively well with the financial crisis and mortgage turmoil.

But traders remained sceptical that Treasuries would slide much more given the depths of the economy's troubles.

"The U.S. economy is in deep trouble. The yield curve has to keep steepening," said a trader at a U.S. investment bank in Tokyo.

June T-note futures TYv1 edged up 0.5/32 to 116-19.5/32.

Benchmark 10-year notes US10YT=RR were up 7/32 in price to yield 3.687 percent, down 3 basis points from late U.S. trade.

Two-year notes US2YT=RR were flat to yield 1.980 percent after reaching a high of 1.996 percent on Wednesday, taking their rise in the past month to 75 basis points from the lows reached in March.

Thursday's data includes weekly jobless claims and the Philadelphia Fed's monthly gauge of regional manufacturing activity.

Economists polled by Reuters see the Philadelphia Fed index improving slightly to minus 15.0 in April from minus 17.4 the previous month, still showing contraction at factories. ECONUS

The Fed will also hold its fourth Term Securities Lending Facility auction, offering $25 billion in exchange for higher-grade collateral.

Traders are also keeping an eye on Thursday's LIBOR setting, with some expecting a sharp increase after the British Bankers Association said it was accelerating a review of how banks set the rates that make up the widely used reference of interbank lending.

The accuracy of LIBOR LIBOR has come under scrutiny from suspicions that some banks were not accurately indicating the higher rates they are paying to borrow in the interbank market, which has suffered severe strains in the credit crisis.

Analysts at Wrightson ICAP said forward trades suggested LIBOR rates would move up to a range between 2.80 percent and 2.85 percent.

Three-month dollar LIBOR was set at 2.73375 percent on Wednesday, holding about 50 basis points above the current fed funds target for overnight rates and some 79 basis points above three-month overnight index swaps.

"Fair value is probably closer to the 2.85 percent to 2.90 percent range, but trading is so diffuse at present that it is hard to state definitively where the fixing 'should' be," Wrightson ICAP said in a note to clients.

"If yesterday's market activity was any indication, the fixings will at least be closer to reality than they were before."

The expected jump in LIBOR hit two-year swap spread, which was quoted at 97 basis points USD2YTS=RR -- slightly wider from late U.S. levels and 10 basis points wider in just three days. (Editing by Hugh Lawson)