Debt prices post third day of gains

NEW YORK Thu Mar 22, 2012 3:51pm EDT

NEW YORK (Reuters) - Treasury debt prices rose on Thursday, retracing some of their recent losses, as a decline in manufacturing in China and the euro zone's two largest economies raised demand for safe-haven assets and hurt stocks on worries that global growth was faltering.

Price gains were tempered, however, and the benchmark 10-year note's yield held a bit above the 200-day moving average, after data showing new U.S. claims for unemployment benefits fell to a four-year low last week.

"There isn't really much to drive the trade. It's just kind of choppy," said Gennadiy Goldberg, interest-rate strategist at 4Cast, Inc. in New York.

"You have a lot of people who don't want to get overly long or short at this point. Is this more of a corrective retracement or are we going back to 2 percent? The crowd is pretty split."

Treasury yields recently rose to multi-month highs on signs of a stronger recovery in the United States. So price gains could be limited, given expectations that a better U.S. economic picture will erode the value of government debt.

"Treasuries are benefiting from the reports of slower growth in other parts of the world," said David Coard, head of fixed-income sales and trading at The Williams Capital Group in New York, adding that "they are also still benefiting from a certain amount of bargain hunting" after last week's price plunge.

The benchmark 10-year U.S. Treasury note rose 6/32 in price to yield 2.28 percent, down from 2.30 percent late Wednesday, while the 30-year bond gained 10/32 to yield 3.37 percent, down from 3.39 percent on Wednesday.

Benchmark yields dipped as low as 2.24 percent, just above their 200-day moving average at 2.23 percent. The yield broke above the 200-day moving average last week, when it added more than 25 basis points. Whenever a break of a key level is sustained, this could signal a new trend, technical analysts say.

Prices began rising on Thursday after the HSBC flash purchasing managers index showed China's manufacturing sector activity contracted in March for a fifth successive month, with the overall rate of contraction accelerating and new orders sinking to a four-month low.

Early buying was also driven by higher German and UK government bonds following data showing the euro-zone economy shrank more than expected in March, hit by a sharp fall in French and German factory activity. British retail sales also dropped more than forecast in February.

In the United States, the Labor Department later reported initial claims for state unemployment benefits fell to a seasonally adjusted 348,000 last week, the lowest level since February 2008. Economists polled by Reuters had forecast claims rising to 354,000 last week.

"The jobless claims trend suggests U.S. growth is continuing and that the Federal Reserve has less reason to initiate any new stimulus," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.

As part of its latest stimulus plan, nicknamed "Operation Twist," the Fed on Thursday bought $2.008 billion of Treasuries maturing from August 2022 through May 2030. Under the program, the central bank is extending the maturity of its Treasury holdings in a bid to lower longer-dated interest rates like those on mortgages.

(Additional reporting by Chris Reese and Ellen Freilich; Editing by Jan Paschal)

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