TREASURIES-Bonds take a hit from perky data, poor auction

* Less dismal jobs, trade data pare safety bids for bonds

* 30-yr auction tails, dealing Treasuries another blow

* 30-years under-performed in swaps; yield curve steeper (Updates after auction, adds quote, latest prices)

By Burton Frierson

NEW YORK, Sept 9 (Reuters) - U.S. Treasuries fell on Thursday after jobs and trade data suggested the economy wasn't as weak as feared, boosting riskier assets such as stocks and hurting demand at the government's long-bond auction.

Safe-haven bonds took a hit early in the day from news that claims for jobless benefits fell more than expected last week and the trade deficit narrowed sharply in July, data which provided hopeful signs for the stuttering economic recovery. For details, see [ID:nN09174403]

The news got worse for Treasuries when bidders held out for higher-than-expected yields at a $13 billion auction of 30-year bonds. This "tail" indicated there were limits to investor appetite for government debt given their low yields currently.

Though Thursday's sale was the only poor one of this week's three offerings totaling $67 billion, it hints the market might be over-priced if the economy is healthier than analysts had feared, even after recent bond-market losses.

"The market is in a corrective mode," said Marty Mitchell, head of government bond trading at Stifel Nicolaus in Baltimore.

"The supply this week is helping to pressure us to some degree. The claims today certainly caught some people by surprise. The longs are probably looking for a better location to get back involved."

Suffering the week's worst auction and the only government coupon-supply offering on Thursday, long bonds were the clear under-performer.

Trading on the open market, 30-year Treasury bonds were last down two points in price, yielding 3.85 percent versus Wednesday's close of 3.74 percent. They were barely down a point just before the auction results were announced.

Long bonds also under-performed in swaps, with the 30-year spread USD30YTS=RR narrowing on the day. In contrast, the 10-, five- and two-year swap spreads were all wider on the day.

UNDER-PERFORMER

Long bonds also underperformed on the yield curve, with 2s/30s and 10s/30s steeper on the day, providing the latest evidence that the market is factoring in a worse economic outcome than recent data indicate is in store.

"Demand at the long end has been waning since a couple of weeks ago when the market was pricing in the world coming to an end, and clearly that hasn't happened," said Michael Pond, Treasury strategist with Barclays Capital in New York.

"The data have been consistent with a slowdown but not sub-1.0 percent growth," he said.

Even apart from the 30-year under-performance it was a bad day across the curve, some of which could be attributed to the massive week of corporate issuance competing with Treasuries to win investor favor.

U.S. corporate bond spreads were unchanged to tighter on Thursday after the market successfully digested about $32 billion in new bond issuance this week, the most priced in any week this year. [USC/]

The benchmark 10-year note US10YT=RR fell 27/32 in price to yield 2.76 percent, right in the area of trendline support on the charts and above Wednesday's close of 2.66 percent.

Five-year notes US5YT=RR were also walloped, falling 16/32 to yield 1.57 percent versus Wednesday's close of 1.46 percent.

Two-year notes US2YT=RR dropped 3/32 to yield 0.57 percent versus Wednesday's close of 0.53 percent. (Additional reporting by Richard Leong, Editing by Chizu Nomiyama)