TREASURIES-Prices pare gains before 7-year auction

* Looming U.S. spending cuts feed safety bid
* Month-end extension buying seen adding bond bid
* Treasury to auction $29 billion seven-year notes
* Fed buys $5.02 billion debt due 2017

By Karen Brettell
NEW YORK, Feb 27 (Reuters) - U.S Treasuries pared most of
their earlier price gains on Wednesday as investors prepared for
the Treasury to auction new seven-year notes.
Small price gains were maintained on safety buying on
worries over the automatic U.S. spending cuts due to take effect
on Friday unless lawmakers reach a budget deal and on the
political uncertainty in Italy.
Portfolio readjustments ahead of the month-end also
supported prices.
"There is still that uncertainty bid and a little bit of a
technical bid," said Lou Brien, market strategist at DRW Trading
in Chicago.
A rally in some Treasuries futures contracts may have also
boosted the cash bond market. Some contracts traded at levels
that sparked technical buying, Brien said.
Benchmark 10-year Treasuries were last up 2/32
in price to yield 1.88 percent, down from 1.89 percent late on
Tuesday. The prices have rallied since yields hit around 2
percent last week.
Traders said the notes may next test resistance at around
1.82 percent.
Thirty-year Treasuries bonds gained 5/32 in
price to yield 3.07 percent, down from 3.08 percent late on
Tuesday.
The Treasury will auction $29 billion in seven-year notes on
Wednesday, the final sale of $99 billion in new supply this
week.
Treasuries gained earlier on Wednesday even after data
showed a jump in durable goods orders, excluding aircraft.
"The durable goods report was better than the headline
report and the market barely backed up at all," said Charles
Comiskey, head of Treasuries trading at Bank of Nova Scotia in
New York.
Bonds had gotten a boost after Federal Reserve Chairman Ben
Bernanke on Tuesday strongly defended the U.S. central bank's
bond purchase program.
The Fed bought $5.02 billion in debt due 2017 on Wednesday
as part of this effort.
"Bernanke reassured on the continuation of quantitative
easing, and I think that you probably had the long end a little
bit oversold," Brien said.
Bernanke's comments came after the release last week of the
latest Fed minutes showed that some policymakers were
increasingly cautious about continuing the bond purchases,
heightening speculation that the Fed might end the buybacks
before year-end.
Bernanke on Wednesday repeated his testimony to Congress.