Bonds ease but set for best month since late 2008

NEW YORK (Reuters) - U.S. Treasuries prices eased on Wednesday as economic data soothed fears of a U.S. recession and pared safe-haven demand for bonds.

Weaker but not dismal readings on jobs and manufacturing pared expectations the U.S. economy is on the brink of recession, but traders still expect more help from the Federal Reserve, analysts said.

The bond market initially rose on month-end buying as money managers rebalanced their portfolios following a solid month for Treasuries.

"The data were not as bad as expected. There is also some profit-taking," said Charles Retzky, director of futures sales with Mizuho Securities USA in Chicago.

Treasuries are poised for their best month since late 2008 at the height of the global credit crunch when investors flocked in to government debt to shelter their money. The relatively strong returns are in spite of dramatic market swings due to fears over public debt problems in the United States and the euro zone.

Safe-haven demand for bonds pushed benchmark yields to their lowest levels in at least 60 years two weeks ago despite Standard & Poor's stripping the United States of its top-notch credit rating.

Barclays Capital's U.S. Treasury index has risen 3.04 percent so far in August, bringing its year-to-date gain to 7.25 percent. This would be the highest monthly total return for Treasuries since 3.39 percent in December 2008.

Prices of benchmark 10-year Treasury notes last traded down 4/32 with a yield of 2.19 percent, up 1 basis point on the day.

The 10-year yield recorded an intraday low of 1.976 percent two weeks ago, according to Tradeweb. That was the lowest in official Fed and Treasury records. Private records show yields pierced below 2 percent at times during World War Two and the Great Depression.

Compounding the recent demand for Treasuries were bets the U.S. central bank would soon engage in a fresh round of monetary stimulus to help the flagging economy, bogged down by a struggling housing market and high unemployment.

There is a growing consensus the Fed may opt to buy longer-dated Treasuries to lower long-term borrowing costs in an attempt to pump up refinancing and business investments.

"The handwriting is on the wall from the Fed. They have set up high expectations at its next policy meeting," Retzky said.

A private report, however, showed modest growth in private sector jobs, soothing some worries about a recession.

The ADP National Employment Report said companies hired 91,000 workers in August, falling short of the 100,000 increase predicted by analysts.

An index on business activity in Chicago and the upper Midwest region fell in August, but the rate of expansion did not slow as much as analysts had expected.

While these reports show economic resilience in the face of growing investor and consumer pessimism, analysts expect the economy will struggle to generate growth and jobs. A few of them are predicting that the United States might slip into recession by the middle of 2012

"We are getting a blip in the data this week, but the Treasuries market is still pricing in low growth," said Christopher Sebald, chief investment officer with Advantus Capital Management in St. Paul, which manages $22 billion.

(Additional reporting by Chris Reese; Editing by Andrew Hay)