TREASURIES-Edge down in Asia after surge on credit

By Satomi Noguchi

TOKYO, June 3 (Reuters) - U.S. Treasuries edged down in Asia on Tuesday with investors taking a breather after a surge made the previous session on new evidence that the financial sector is struggling.

Treasuries rallied on Monday after Standard & Poor's cut credit ratings on three big U.S. securities firms and Wachovia WB.N, the fourth-largest U.S. bank, ousted its chief executive.

The jump in Treasuries had stemmed not only from renewed safe-haven bids but also from corrective moves after the previous week's inflation-fuelled losses that had pushed the benchmark 10-year Treasury yield to a five-month peak above 4.0 percent, analysts said.

Treasuries may hold firm in the near term on renewed credit market concerns and a sharper focus among investors about what is expected to be a weak payrolls report later this week, although a huge rebound was unlikely, analysts said.

"As we expect earnings reports from major U.S. financial firms later this month, caution on bad news may provide support to Treasuries," said Yoshio Takayashi, a bond strategist at Barclays Capital.

"But at the same time, the gains would be limited because it is hard to imagine something so surprisingly bad will come out, unlike before," Takahashi said.

June T-note futures TYv1 dipped 2/32 to 114-25/32 in quiet trade.

The 10-year note US10YT=RR fell 3/32 in price to yield 3.980 percent, up a basis point from late New York trade on Monday.

Last week's sharp sell-off came as investors shifted to the view that the Federal Reserve will start hiking interest rates later this year against a backdrop of soaring oil prices, and drove up the 10-year yield to a five-month high of 4.14 percent.

The two-year note US2YT=RR edged down 1/32 in price to yield 2.524 percent, up about 2 basis points.

On Monday, the prices of two-year notes jumped after Standard & Poor's cut the ratings of Lehman Brothers LEH.N, Merrill Lynch MER.N and Morgan Stanley (MS.N) and said outlooks on large U.S. financial institutions are "predominantly negative" on prospects for more write-offs.[ID:nN02565648]

Investors will look to comments by Fed Chairman Ben Bernanke on the economic outlook later this session for clues on the course of the U.S. monetary policy. Bernanke will speak from 1300 GMT via satellite to an International Monetary Conference Central Bankers Panel. (Editing by Michael Watson)