TREASURIES-U.S. bond prices slip as stocks claw higher
* Bond market recovery fizzles as Wall Street stocks turn up
* Speculation over reduced Fed's bond purchases cap bids
* Traders await clues on QE3's future from Bernanke
* U.S. Fed buys $1.45 billion in long-dated Treasuries
NEW YORK, May 20 (Reuters) - U.S. government debt prices slipped on Monday, with benchmark yields hovering near two-month highs as Wall Street stocks' rise into fresh record territory reduced earlier safe-haven bids for bonds.
Speculation about whether the U.S. Federal Reserve will begin slowing its bond purchases later this year also put selling pressure on the debt market, as analysts have become more comfortable with the view that the economy is on a firmer footing and job growth is on a sustainable path.
Traders and analysts anticipated Treasuries will likely move in a tight range over the next few days, as investors await clues on where the U.S. central bank stands on quantitative easing from Fed Chairman Ben Bernanke, who will testify about the economy before a congressional panel on Wednesday.
"The market is going to have a hard time moving away from its current level ahead of the Bernanke testimony," said Stan Shipley, a bond strategist with ISI Group in New York.
Treasuries prices rose earlier in a rebound from Friday's losses, due to lower U.S. stock prices and a weaker dollar against the yen.
By midday, benchmark 10-year Treasuries notes were down 3/32 in price to yield 1.966 percent, up 1.2 basis points from late Friday, after having traded up as much as 10/32 earlier with a yield of 1.919 percent. The 10-year yield was about one basis point below the two-month peak set last week due to stronger stock prices and a surging dollar.
On Wall Street, blue-chip stock prices rebounded from a weaker open. The Standard & Poor's 500 was up 0.27 percent after touching a record intraday high at 1,672.08 points.
A weaker dollar helped cap the decline in U.S. bond prices. A weaker dollar makes it cheaper for foreign investors to buy Treasuries and other assets.
The greenback retreated against the yen and other major currencies after Japan's economy minister Akira Amari remarked its currency might have weakened enough in the wake of a bold $1.4 trillion monetary plan announced in April. The yen fell to a 4-1/2 year low against the dollar last week.
While the Fed's aggressive purchases of Treasuries and mortgage-backed securities, known as QE3 and currently at $85 billion a month, have helped the housing market recover and consumers and companies pay down their debt, they have fallen short of achieving the Fed's goals of substantially lowering unemployment and sustaining real economic growth, analysts said.
Since late last year, there have been discussions among Fed policymakers over the cost of sticking to this ultra-easy monetary scheme, which critics say is inflationary.
Dallas Fed President Richard Fisher told CNBC television on Monday that while the Fed's policies have boosted stocks and helped the rich, it was unclear whether they are doing enough for the broader U.S. economy. Fisher has been an opponent of the Fed's asset purchase program.
"There is some impending fear that the Fed will taper its bond purchases," said Robbert Van Batenburg, director of market strategy at Newedge USA LLC in New York.
Many analysts on Wall Street, however, reckoned the Fed is unlikely to back away from its commitment to bond purchases this year with unemployment still high and recent data suggesting a higher risk of deflation.
"Until we see sustainable growth in payrolls, the Fed is not going to change its policy anytime soon," said Mike Cullinane, head of Treasuries trading in D.A. Davidson in St. Petersburg, Florida.
Bets on another spring economic slowdown fell after a better-than-expected April jobs report over two weeks ago, but they made a partial comeback after a spate of disappointing reports on housing and manufacturing activities last week.
The U.S. central bank will buy $1.45 billion in Treasuries that come due in February 2036 to February 2043 for its QE3 program on Monday.
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