TREASURIES-Bonds up as caution spurs safety bid

* Caution ahead of expected Spanish bank bailout request
* Concern China data due Saturday could be weak
* German import/export drop raises euro zone contagion fear

By Ellen Freilich
NEW YORK, June 8 (Reuters) - U.S. Treasuries prices extended
the previous session's gains on Friday as worries about the
slower global economy growth and Europe's debt crisis fed a bid
for safe-haven U.S. government debt.
Spain, which sold debt on Thursday in a sale that went
mainly to the country's banks, is expected to request European
aid for its ailing banks over the weekend, an event that would
make it the fourth and largest nation to seek assistance since
the euro zone debt crisis began.
Brian Jacobsen, chief portfolio strategist at Wells Fargo
Funds Management LLC in Menomonee Falls, Wisconsin, said, "On
the margin, a Spanish bank recapitalization would begin to snuff
out some of the flames in Europe."
Once that happens, "U.S. Treasury yields should rise as
problems abate in Europe," he said.
U.S. bond market gains Thursday and Friday followed a
three-day retreat earlier in the week.
"Financial markets are bipolar," said Ward McCarthy, chief
financial economist and managing director, fixed income division
at Jefferies & Co. in New York. "Periodic fits of irrational
exuberance are followed by the acknowledgement of reality. That
is why it was risk on earlier this week and risk off today."Benchmark 10-year notes were up 18/32 at
100-18/32, holding overnight gains, their yields easing to 1.58
from 1.64 percent at Thursday's New York close. The 10-year
yield has risen from a historic low of 1.442 percent a week ago.
Heightening concern about the global growth outlook,
including U.S. growth, Germany imports tumbled at their fastest
rate in two years in April, and exports fell more than expected,
a sign that even Europe's most robust economy is being affected
by the euro zone debt crisis.
An early stock slide on Wall Street and expectations of weak
Chinese economic data also fed the bid for safe-haven U.S.
Treasuries. Major U.S. stock indexes fell 0.4 percent. Traders
said China's decision to cut rates by 25 basis points on
Thursday might be a sign inflation and industrial output data
due on Saturday would fall short of expectations.
"This market is in full fear mode heading into the
weekend on expectations that Chinese economic numbers could come
in weaker," a trader said.
Prices on the 30-year government bond rose 11/32
to 106-20/32, their yields falling to 2.68 percent from 2.74
percent on Thursday and up from a record low of 2.51 percent
last Friday.
Aside from the immediate concerns of Chinese economic data
and developments on the Spanish banking crisis, investors are
focused on the outcome of the Greek elections on June 17 that
may determine whether Greece remains in the euro zone.
This will be followed by the meeting of the monetary
policy-making committee of the U.S. Federal Reserve meets on
June 19-20 with the question still open as to whether Fed
officials will take more steps to ease monetary conditions.
On Thursday Fed Chairman Ben Bernanke said the U.S. central
bank was ready to shield the economy if financial troubles
intensified, telling a congressional committee the Fed was
closely monitoring "significant risks" to the U.S. economy from
Europe's debt and banking crisis.
SUPPLY AHEAD
Treasuries prices rose even in the face of upcoming supply.
The Treasury Department will sell $32 billion in new three-year
notes and reopen a prior 10-year note issue by $21 billion and
an older 30-year bond issue by $13 billion next week.