Bonds rise as Bernanke keeps stimulus door open

NEW YORK (Reuters) - U.S. Treasuries prices rose on Friday after the Federal Reserve chief left the door open for more measures to help a wobbly economy but offered no concrete plans for further monetary stimulus in a highly anticipated speech.

Bond trading turned to a trickle by noon, as Wall Street firms focused on possible market disruptions from a powerful storm predicted to punish the U.S. East Coast including New York City this weekend.

Treasuries rallied initially, with 30-year bond prices rising as much as two points after Fed Chairman Ben Bernanke said the U.S. central bank's policy-setting Federal Open Market Committee would extend its September meeting to two days from one to discuss options for stimulus. A stimulus program could involve buying longer-dated Treasuries.

Bond prices retreated from their session highs because Bernanke, in his speech to an annual central bankers conference in Jackson Hole, Wyoming, announced no definite plans. Longer yields ended higher on the week, for the first time since the last week of July.

"He kind of missed an opportunity. It was too soft," Gibson Smith, co-chief investment officer at Janus Capital Group in Denver said of Bernanke's speech.

In recent days, investor expectations had dwindled that Bernanke would use his speech at the Jackson Hole conference to unveil a third round of quantitative easing.

A year ago at this annual event, he had signaled the Fed's intention to buy Treasuries to lower borrowing costs in a bid to combat the crippling effect of deflation. That speech was seen as a watershed event that sparked a rally in global stock markets and other risky assets.

"There were some bets in the market that there was an outside chance that something more concrete could be announced today," said Rich Bryant, head of Treasury trading at MF Global Securities in New York.

Benchmark 10-year Treasury notes last traded up 12/32 in price to yield 2.21 percent, down from 4 basis points from Thursday but up 12 basis points on the week. They posted a full-point gain immediately after Bernanke started speaking.

The 30-year bond finished up 1-8/32 with a yield of 3.54 percent, down 7 basis points on the day but up 14 basis points from last week.

Prior to the Bernanke speech, the bond market rose after the U.S. government said it downgraded its estimate of second-quarter gross domestic product to a 1 percent annualized rate from an initial reading of 1.3 percent.

The bond market also shrugged off a rally of Wall Street stocks.

PREPARATION FOR IRENE

Bond prices clung to gains, even as volume petered out as Wall Street firms prepared for operational problems if Hurricane Irene inflicts serious damage to the New York, New Jersey and Connecticut region where thousands of traders live.

Friday's trading volume was among the lowest so far this year, traders said. It was 59 percent of the five-day average and less than 50 percent of longer daily averages, according to Tradeweb.

Traders scrambled to raise cash early on fears that Irene could temporarily disrupt trading early next week.

"Some traders expect that there are going to be some people on their desk that won't be able to make it in," said Scott Skyrm, head of repo trading at Newedge in New York.

There are no changes to the trading hours for the U.S. bond market on Monday "as of now," Katrina Cavalli, a spokeswoman for the Securities Industry and Financial Markets Association said late Friday.

She said any recommended changes to Monday's trading hours will post be posted on Sifma's website -- www.sifma.org -- and the group will "disseminate an announcement widely."

If no severe disruption occurs, Treasuries trading is expected to be light and choppy next week ahead of the government's payrolls report on Friday, analysts and traders said. For more, see

(Additional reporting by Chris Reese and Karen Brettell; Editing by Leslie Adler)