TREASURIES-Prices gain as manufacturing weak, inflation subdued
* U.S. industrial output falls more than expected in April * NY Fed manufacturing shrinks, despite growth expectations * Producer price index shows biggest decline in three years * Euro zone posts sixth straight quarter of contraction By Luciana Lopez NEW YORK, May 15 (Reuters) - U.S. Treasury debt prices rose on Wednesday after a week of losses as manufacturing data pointed to lingering weakness in the economy and price pressures remained subdued. U.S. industrial production fell more than expected in April, down 0.5 percent. Regional data suggested there could be more contraction ahead, as well, with the New York Fed's "Empire State" general business conditions index shrinking to minus 1.43 in May, despite expectations for growth from April. In addition, the U.S. Labor Department said on Wednesday its seasonally adjusted producer price index fell 0.7 percent last month, the biggest decline since February 2010. That combination of economic weakness and slow inflation, analysts said, suggested that the Federal Reserve could continue its massive easing program for months, if not longer. "So we've got slower growth, sliding inflation and central bank stimulus," said Kim Rupert, managing director of global fixed income analysis at Action Economics LLC in San Francisco. "Today's data add to expectations that there's not going to be any slowing in central bank stimulus anytime soon," she added. The Fed is now buying $85 billion per month in Treasuries and mortgage-backed securities in a bid to boost the U.S. economy and bring down stubborn unemployment. Prices for 10-year notes rose 12/32 to yield 1.942 percent, from 1.9766 percent late on Tuesday. Prices for 30-year bonds advanced 25/32 to yield 3.158 percent, from 3.1939 percent late on Tuesday. Investors are trying to gauge when the Fed might slow or even stop its easing program. While some labor market data have been encouraging recently, there have remained enough disappointing data - such as Wednesday's factory figures - to underscore the continued potential for weakness in the world's biggest economy. "Today's figures remain consistent with the soft patch story that is likely to prevent the Federal Reserve from scaling back their QE efforts before" the fourth quarter of this year, said James Knightley of ING Bank in a note to clients. The unemployment rate also remains at 7.5 percent, a full percentage point above the 6.5 percent that Fed policymakers want to see. And with inflation also well below target - the Fed wants to see that figure around 2 percent - there are few concerns that price pressures will eat into economic gains. "Over the next year at least, inflation is more likely to be too low rather than too high," said Paul Dales, senior U.S. economist with Capital Economics in Toronto. Indeed, the economy is still struggling, with analysts forecasting around 2 percent expansion this year - hardly the robust growth that once made the U.S. economy a global engine. Nevertheless, that's still better than what the euro zone is facing: data on Wednesday showed the monetary union's economy has contracted for six straight quarters.
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