TREASURIES-Bonds rise as stock loss trumps inflation worries

* Bonds move back into positive territory in late trade
* Weak U.S. job growth seen raising chances for QE3
* Corporate debt supply adds selling pressure on bonds
* New three-year debt seen selling near record low yield

By Richard Leong
NEW YORK, Sept 10 (Reuters) - U.S. Treasuries prices rose on
Monday as a sell-off on Wall Street stocks overshadowed
inflation worries about the Federal Reserve possibly buying more
bonds and jitters that a wave of corporate bond deals might cut
demand for government debt.
More investors sold stocks in the last hour of trading and
moved some money back into safe-haven U.S. government debt. They
booked profits ahead of a Fed policy meeting later this week and
after the Standard & Poor's 500 stock index
climbed to its highest level in nearly five years last week.
"It was very up-and-down day for bonds. Stocks were kind of
melting down. People are hunkering down, waiting for what the
Fed will do," said Gennadiy Goldberg, an interest rate
strategist at TD Securities in New York.
Prior to the deepening decline in stocks, Treasuries prices
were in the red due to inflation and supply worries.
While more stimulus from the central bank is intended to
help the U.S. economy, analysts have questioned the
effectiveness of a third round of quantitative easing, dubbed
QE3, as the prior two rounds of bond purchases have had limited
success in lowering unemployment.
If the Fed pumps more cheap cash into the economy and
continues to keep interest rates near zero, some traders fear it
would be tough to keep inflation in check whenever economic
growth gains traction.
"Of the possible consequences of what the Fed could do, the
market is focusing only on the most negative one. The prospect
of increasing inflation expectations," said Jim Vogel, interest
rate strategist at FTN Financial in Memphis, Tennessee.
In its prior two rounds of stimulus, the U.S. central bank
bought a total of about $2.3 trillion in U.S. Treasuries and
mortgage-backed bonds.
In the wake of Friday's disappointing payroll report,
analysts in a recent Reuters poll see a 60 percent chance the
Fed would embark on QE3.
Interest rates futures implied traders bet the Fed will
prolong its near-zero rate pledge into 2015 from the current
late 2014 guidance.
Fed policy-makers will meet on Wednesday and Thursday.

Other closely watched events this week will include a ruling
by Germany's Constitutional Court on Wednesday on whether the
euro zone's permanent bailout fund is compatible with German
law, a vital condition for it to come into force.
The Netherlands will hold elections the same day.
Growing inflation expectations from possibly more Fed
stimulus cast some worries about the $66 billion in
coupon-bearing federal debt for sale this week.
In the private debt market, 14 high-grade deals were
scheduled on Monday for sale this week. Some analysts estimated
this week's investment-grade corporate debt offerings could
total $30 billion, according to IFR, a unit of Thomson Reuters.

"It could be a tough week for supply," said Guy LeBas, chief
fixed income strategist at Janney Montgomery Scott in
Philadelphia.
The U.S. Treasury Department will kick off that supply on
Tuesday with a $32 billion auction of three-year notes, followed
by $21 billion in 10-year supply on Wednesday
and $13 billion in 30-year bonds on Thursday.
In the "when-issued" market, traders expect the upcoming
three-year note issue due Sept 2015 to yield 0.335 percent
, a hair above the 0.334 percent set a year ago,
which was the lowest ever at a three-year note auction.
In the open market on below-average trading volume,
benchmark 10-year Treasuries notes were up 2/32 in
price at 99-22/32, yielding 1.659 percent, down 0.9 basis point
on the day. They were down as much as 6/32 with a 1.69 percent
yield.
Thirty-year bonds, which are most vulnerable if
inflation accelerates, were 7/32 higher at 98-25/32 for a yield
of 2.810 percent, down 1.2 basis points from late Friday. They
were down 28/32 earlier.