TREASURIES-Nagging Europe concerns lift U.S. bond prices
* Italian, Spanish yield rise renews bids for Treasuries * Weaker European stocks also feed safe-haven bond demand * U.S. Treasury to sell $72 bln in debt next week * Fed purchases $3.65 bln in 5-to-7-year notes By Richard Leong NEW YORK, Feb 6 (Reuters) - U.S. government debt prices rose on Wednesday as weaker U.S. and European stock prices and overhanging worries about possible political shakeups in Italy and Spain rekindled demand for safe-haven bonds. Bond prices climbed also as traders sought to profit from the Federal Reserve's latest purchase of Treasuries, which was part its $44 billion monthly program aimed to lower borrowing costs and unemployment. The U.S. central bank bought $3.65 billion in government bonds to mature in Nov. 2018 to Jan. 2020. "There are still a lot of possible disruptive currents coming from Europe," said Lou Brien, market strategist at DRW Trading in Chicago. "The problems there have not gone away, but the market had just ignored them until this week." In addition to speculation about leadership changes in Spain and Italy, traders have been monitoring comments among European leaders about the euro, which has strengthened against the dollar and yen in the first six weeks of the year. The rise in the single currency, which could hurt the region's exporters, might put pressure on the European Central Bank to act though analysts reckon is highly unlikely at this point. ECB policy-makers will meet on Thursday. These concerns were mitigated by the limited decline in stock prices and a longer-term view that U.S. interest rates will rise as the economy, boosted by the housing sector, is expected to gather momentum later this year, investors and traders said. "You are seeing some trading volatility around this 2 percent yield level" on the 10-year notes, said Jason Rogan, director of Treasuries trading at Guggenheim Partners in New York. Benchmark 10-year notes were 5/32 higher in price at 96-26/32 on average trading volume to yield 1.985 percent, down 2.1 basis points from late on Tuesday when Treasury prices fell. The 30-year bond was up 6/32 in price at 91-12/32 to yield 3.2007 percent, 1.3 basis points lower than Tuesday. The yield on 10-year Spanish government notes ended up 6 basis points to 5.43 percent, while the yield on Italian sovereign debt finished almost 10 basis points higher at 4.55 percent. The index on top European stocks provisionally closed 0.4 percent lower, above its earlier lows, while Wall Street share prices were modestly lower, bouncing off their session lows. In the absence of major economic data, investors received details on the U.S. Treasury Department's debt auctions at its quarterly refunding next week. It will sell $32 billion in three-year notes on Tuesday; $24 billion in 10-year debt on Wednesday and $16 billion 30-year bonds on Thursday, matching analyst forecasts. It added that it plans to release a final decision on selling floating-rate debt for the first time. Treasury expected the notes' debut to occur within the next year. "It shows they are looking for different ways to add supply," Guggenheim's Rogan said. While a major deal on federal spending and taxes in Washington remained elusive, the recent move to temporarily raise the federal debt ceiling has averted a government default. Investors feared another political showdown between U.S. President Barack Obama and Republican lawmakers over spending, which could result in a package of budget cuts worth $112 billion this year to kick in on March 1. Further government reduction could depress economic activity as seen in the fourth quarter of 2012 when the gross domestic product contracted by 0.1 percent due partly to cutbacks in the government's defense spending.
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