TREASURIES-Bonds edge higher on ISM prices paid drop

(Updates with reaction to ISM manufacturing data)

NEW YORK, Sept 2 (Reuters) - U.S. Treasury debt prices edged slightly higher on Tuesday, erasing earlier losses on ebbing inflation concerns after a report showed manufacturers' prices paid fell steeply, analysts said.

The benchmark 10-year Treasury note's US10YT=RR price, which moves inversely to its yield, traded up 1/32 for a yield of 3.82 percent, versus 3.86 percent shortly before the report and 3.83 percent late Friday. U.S. bond markets were closed on Monday in observance of the U.S. Labor Day public holiday.

The prices paid component of the Institute for Supply Management's August manufacturing report charted its biggest one-month drop since October 2006.

"The prices paid number did get attention, when combined with the fall of energy prices," and was "on the more constructive side for bonds," said Kevin Flanagan, fixed income strategist for global wealth management with Morgan Stanley in Purchase, New York.

U.S. crude oil prices CLc1 tumbled below $109 per barrel after Hurricane Gustav did not badly damage Gulf of Mexico oil and gas installations. (Reporting by John Parry; Editing by James Dalgleish)