TREASURIES-Bond prices edge higher after weak data

* Yield curve steady between 2-yr point and 10-yr point

* 2-yr notes will see better bid at 0.25 pct yield -Daiwa

* U.S. stock strength spurs some selling in Treasuries
(Changes lead, adds quote, updates prices)

By Emily Flitter

NEW YORK, Aug 23 (Reuters) - U.S. Treasury prices edged
higher on Tuesday even as U.S. stocks rose for a second
straight session, after a new round of weak economic data
raised hopes the Federal Reserve would consider extra measures
to stimulate the economy.

The 30-year bond briefly fell a point in early trading, but
then posted light gains, while shorter-dated Treasuries prices
also edged higher.

The hopes of a new round of stimulus by the Fed, after data
showed sales of new single-family homes fell to a five-month
low in July and manufacturing in the U.S. central Atlantic
region declined in August, helped spur a rise of more than 1
percent in the major U.S. indexes.

"The stock market the last day and a half has been banking
on QE3," said Joe Larizza, a government bond trader at Vining
Sparks in Memphis.

Larizza said the worries over the economy that led to hopes
of more Fed action contributed to Treasuries' price gains, with
more debt and bank capital problems in the euro zone also
fueling a safety bid for Treasuries.

Speculation is widespread in financial markets that Federal
Reserve Chairman Ben Bernanke will use his Friday speech at a
central banker conference in Jackson Hole, Wyoming, to signal a
new monetary offensive to support the faltering U.S. economy.

Bernanke, however, is most likely to outline gradualist
measures, which would disappoint those looking for a big-bang
approach such as a fresh round of bond buying, known as QE3.

The Fed chairman looks set to discuss ways the central bank
could tweak the Fed's balance sheet as a means to put further
pressure on medium- and long-term interest rates and anchor
them at low levels. These could be implemented in September and
October at upcoming Fed meetings. [ID:nN1E77I0NF]

Treasuries, which normally move inversely to stocks, saw
some light buying after the weak data, but strong stocks
appeared to be keeping a lid on the rally.

"Treasuries have rallied on the weak housing data and the
five-year sector leading the way higher and is now net better
on the day," said Ian Lyngen, senior government bond strategist
at CRT Capital Group in Stamford, Connecticut, in a note to
clients.

Lyngen said volume during morning trading was 83 percent of
the 10-day moving average.

Tuesday's manufacturing data, released by the Federal
Reserve Bank of Richmond, added to recent reports of
manufacturing slowdowns in other parts of the country. Markets
are awaiting data to be released next week by the Institute for
Supply Management that will give a nationwide reading on the
manufacturing sector.

"We have the third big regional manufacturing report to
round out the ISM story, and it's not a good picture right
now," said Tom Porcelli, U.S. economist at RBC Capital Markets
in New York.

"You have good odds of having the ISM under 50. The reason
why I think that is important is it's another knock to the
already fragile market and consumer psyche."

A reading under 50 for the ISM manufacturing index would
indicate contraction, while anything over 50 would indicate
expansion.

Treasuries' price gains, however slight, looked set to foil
bond traders' attempts to sell Treasuries and cheapen prices
ahead of the coming auction. At 1 p.m. (1700 GMT) the Treasury
Department will auction $35 billion in two-year notes.

Raymond Remy, a trader at Daiwa Securities in New York,
said he expected aggressive buying of two-year notes to begin
once their yield reached 0.25 percent but added it was unlikely
two-year yields would reach that level before the auction.

"Some time this week," he said of the 0.25 percent mark.

The two-year note US2YT=RR was last unchanged in price
and yielding 0.23 percent.

The benchmark 10-year note US10YT=RR was up 2/32 in
price, its yield edging down to 2.106 percent from 2.11 percent
late on Monday.

The 30-year Treasury bond US30YT=RR was last trading 2/32
higher in price after briefly shedding more than a point. Its
yield was down 3.42 percent from 3.43 percent late on Monday.
(Editing by Leslie Adler)