TREASURIES-Bonds ease as data shows fewer jobs lost in Aug

* Bonds down but still on track for fourth week of gains

* Aug job losses less than expected, jobless rate jumps

* $70 billion in bond supply due next week (Updates prices, adds quote, details)

By Burton Frierson

NEW YORK, Sept 4 (Reuters) - U.S. Treasuries slipped on Friday after data showed fewer-than-expected job losses in August, dimming the allure of safe-haven government bonds.

U.S. employers cut 216,000 jobs last month, fewer than the 276,000 lost in July or the 225,000 expected by economists. The data gave some cheer to investors betting that the economy is on the road to recovery from the worst recession in decades.

Average hourly earnings also jumped, but the encouragement was tempered by the fact that the unemployment rate rose much more than expected to its highest level in 26 years, which initially caused bonds to cut their losses. For details see [ID:nN04159609]

"The Treasury market may have rallied initially on this payrolls report because the unemployment rate was 0.2 percent higher than expected, -- a pretty big miss there," said Suvrat Prakash, U.S. interest rate strategist with BNP Paribas in New York.

But he noted that the consensus was for the unemployment rate to rise anyway, adding: "Maybe what we should take out of this is the fact that wage earnings were up and the actual level of payrolls itself was better than expected."

The 30-year bond US30YT=RR was last down 23/32 in price, yielding 4.20 percent. It was briefly off more than one point in price.

The benchmark 10-year note US10YT=RR fell 8/32, yielding 3.38 percent versus Thursday's close of 3.35 percent.

U.S. stocks .SPX posted modest gains, making riskier assets appear more attractive compared with more conservative investments such as government bonds.

Another near-term negative for Treasuries was next week's bond auction slate, which will bring $70 billion worth of debt to the market.

"The market has to take down the supply," said Prakash. "Overall demand, while it has been healthy, it's healthy at the right price, so you tend to see yields drift higher into auctions."

NEW LIFE?

Ultimately, though, the mixed nature of the jobs report -- the biggest economic release of the month -- may prove supportive for bonds, which were still on track for their fourth week of gains despite Friday's mild retreat.

Treasuries have not had a winning streak like this since late last year, when credit markets melted down in the wake of the Lehman Brothers collapse.

The situation now appears less dire, but bonds are rallying on the Federal Reserve's assurances that it will not begin raising interest rates until the economy is on firmer footing.

High unemployment is likely to encourage bond investors who do not believe the Fed will raise interest rates any time soon since inflation is unlikely to take off when consumers fear for their jobs and seek economic security.

"Despite the recent improving trend in overall economic data, the high unemployment rate is still not going to sit well with most investors," said Lawrence Glazer, managing partner of Mayflower Advisors in Boston.

"These data may breathe new life into Treasuries." (Additional reporting by John Parry; Editing by Dan Grebler)