TREASURIES-Bonds gain as services data quells recovery hopes
* ISM service sector reading restrains recovery hopes
* ADP data show private sector job losses still large
* Government to sell $75 billion notes, bonds next week
* Refunding details weigh briefly on market (Recasts, updates prices, adds comments)
By John Parry
NEW YORK, Aug 5 (Reuters) - U.S. Treasury debt prices rose on Wednesday after a report showed the service sector contracted at a faster pace than anticipated in July, denting some hopes of an impending economic recovery and burnishing the allure of safe-haven government debt.
Treasuries had earlier come under pressure from a government announcement that it aimed to sell some $75 billion of notes and bonds next week.
But the signs of fragility in the economic data proved to be the prevalent market catalyst.
The weaker-than-anticipated service sector report from the Institute for Supply Management, "highlights the notion that the upward revisions to GDP represent an empty shell of government stimulus," said T.J. Marta, founder and market strategist with Marta on the Markets, a financial markets research firm in Scotch Plains, New Jersey.
"The best you can say about the service sector is that it is contracting at a lesser rate than when it was collapsing. Treasuries got a good rally out of it (the report)," Marta said.
The benchmark 10-year Treasury note's price recouped all its earlier losses to trade higher, up 7/32, for a yield of 3.66 percent US10YT=RR, versus 3.69 percent late on Tuesday.
Earlier, Treasuries prices fell after the Treasury Department said it intends to sell $75 billion of notes and bonds next week, underscoring the supply deluge that continues to flood the bond market.
The amount was near the higher end of analysts' forecasts, while the government said it was also to consider replacing 20-year Treasury Inflation Protected Securities (TIPS) with 30-year TIPS, which pushed up yields of longer-dated inflation protected securities in the market.
"The market seems to be cheapening up. Some people might have been thinking the (refunding) sizes would be a tad bit smaller," said Carl Lantz, interest rate strategist with Credit Suisse in New York.
The 30-year Treasury bond traded up 5/32 in price for a yield of 4.46 percent US30YT=RR, versus 4.47 percent late Tuesday.
Earlier in the U.S. session, Treasuries trimmed losses after a report showed a bigger-than-expected loss of U.S. private sector jobs in July, signaling that any labor market recovery remains a distant prospect, despite signs in housing and manufacturing that the longest recession in decades may be lifting.
The 2-year Treasury note's price was up 3/32 for a yield of 1.17 percent US2YT=RR, versus 1.22 percent late on Tuesday.
Treasuries traders are awaiting the widely watched U.S. non-farm payrolls report for July due on Friday, which is expected to show a loss of some 320,000 jobs according to economists' median forecast in a Reuters poll.
"The overall backdrop is that there is not a lot of risk taking going on right now ahead of payrolls," Lantz said.
(Additional reporting by Chris Reese and Richard Leong in New York) (Reporting by John Parry; Editing by Theodore d'Afflisio)
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