TREASURIES-Bonds rebound as stocks look soft

NEW YORK, Sept 12 (Reuters) - U.S. Treasuries firmed on Wednesday as a softer outlook for Wall Street allowed bonds to recover some of the previous session's losses and benefit from continued expecatations of Federal Reserve rate cuts.

The lack of economic data will afford traders plenty of time to consider the recent debate over what the Fed will decide at its Sept. 18 meeting, with some investors wondering if it will favor an aggressive 50 basis point rate cut.

Benchmark 10-year Treasuries suffered their worst daily fall in a month on Tuesday, measured by the rise in yields, as a stock market rally led investors to pare back on bonds.

"To some extent stock weakness is giving bonds a little bit of a lift, and I think we'll continue to see this back-and-forth for a while," said Kim Rupert, managing director for global fixed income analysis at Action Economics LLC, in San Francisco.

Benchmark 10-year notes US10YT=RR rose 7/32 in price to yield 4.35 percent. Two-year notes US2YT=RR, the most sensitive to changing views on Fed policy, gained 2/32 in price to yield 3.91 percent.

On Monday, two-year yields fell as far as 3.82 percent, their lowest since late 2005.

Influences from overseas markets were mixed. Japanese government bonds rose after Prime Minister Shinzo Abe unexpectedly announced that he will step down. For details see [ID:nT85785].

However, euro zone government bonds were little changed.

Markets were also likely to monitor developments in Asia after authorities in India and Malaysia issued tsunami warnings following a powerful quake near Indonesia's Sumatra island, which made some buildings there collapse.