* Spain seeks EU aid for its wobbly banking sector * Chinese manufacturing regains growth after a year * ISM U.S. factory sector unexpectedly contracts in Nov * St Louis Fed chief sees Fed buying bonds after Twist-WSJ By Richard Leong NEW YORK, Dec 3 U.S. Treasuries prices fell on Monday after news that Spain is seeking help for its troubled banks and better-than-expected data on Chinese manufacturers reduced safe-haven demand for less-risky government debt. Traders also blamed the market's decline on investors shifting cash into stocks from bonds in reaction to a research report from Goldman Sachs, which upgraded its short-term global outlook on equities. "You got the Spain news which was expected but it was still welcomed news for risky assets. You also had some pretty good Chinese data. The (bond) market is a little fatigued," said Jason Rogan, director of Treasuries trading at Guggenheim Partners in New York. The market's losses were limited by nagging worries about the lack of progress in budget talks in Washington and the bumpy debt negotiation between Greece and its lenders. Benchmark 10-year Treasury notes were 4/32 lower, yielding 1.625 percent, up about 1.9 basis points from late on Friday. The 10-year yield flirted with its 100-day moving average of 1.6519 percent earlier following an 8-basis-point decline last week, according to Reuters data. In November, Treasuries earned a middling 0.52 percent return, lagging junk and municipal bonds, according to Barclays. The three major Wall Street indexes were narrowly mixed in midday trading after opening higher. The initial selling in Treasuries stemmed from data showing Chinese manufacturing returned to growth in November for the first time in over a year. Bonds' losses grew on news that Spain formally requested the disbursement of 39.5 billion euros ($51.4 billion) of European funds to recapitalize its crippled banking sector. Even with Monday's fall, U.S. bond prices have bounced in a tight range since the U.S. presidential election nearly a month ago on the likelihood of a contentious process between President Barack Obama and Republican lawmakers to avoid the "fiscal cliff." The absence of a budget deal before year-end would cause a fiscal contraction -- a series of automatic tax hikes and spending cuts worth $600 billion -- and possibly tip the U.S. economy into a recession, economists say. U.S. business executives have cut spending and hiring on possible fallout from a failure to reach agreement. The Institute for Supply Management said its manufacturing index unexpectedly fell in November to the lowest level since July 2009. The report contradicted data released earlier by Markit showing factory activity grew modestly last month. Tepid growth and high unemployment will likely cause the Federal Reserve to stick with its ultra-loose monetary policy. "It has set a very high bar to stop easing. We have to see a substantial improvement in the labor market, and we haven't seen that," said Stephen Stanley, chief economist at Pierpont Securities in Stamford, Connecticut. The U.S. central bank is widely expected to decide at its policy meeting next week that it will continue to buy longer-dated government debt in 2013 in an effort to hold down mortgage rates and other long-term borrowing costs to support the economy. Its "Operation Twist" program, which involves selling short-dated Treasuries and buying $45 billion a month in longer-dated issues, will expire at the end of the month. St. Louis Fed President James Bullard told the Wall Street Journal on Monday that the Fed could replace "Twist" with a smaller $25 billion per month outright purchases in Treasuries. The Fed sold $7.828 billion in short-dated issues for Operation Twist after buying $16.8 billion in long-dated debt last week.