TREASURIES-Retreat in Asia as Yahoo bid boosts stocks

By Eric Burroughs

TOKYO, Feb 4 (Reuters) - U.S. Treasuries retreated in Asia on Monday, surrendering some gains from late last week as regional stock markets pushed higher after Microsoft's bid for Yahoo Inc gave a boost to battered investor confidence.

Japan's Nikkei share average .N225 jumped 2.3 percent and is now up 10 percent from its lows hit in January. Other Asian equity markets .MIAPJ0000PUS also climbed more than 2 percent. [MKTS/GLOB]

Treasuries had pushed higher on Friday even as a report showing an unexpected rebound in U.S. factory growth in January helped to offset other data showing U.S. companies shed workers for the first time in more than four years.

Investors believe the U.S. economy's troubles and the potential for a recession will prompt the Federal Reserve to slash rates further in coming months after chopping them by an unusually aggressive 1.25 percentage points last month.

Futures on the federal funds rate FEDWATCH show a 70 percent chance of the Fed cutting to 2.5 percent from the current 3.0 percent at its next meeting in mid-March as the central bank tries to stave off a deeper economic slump.

Economic data later in the day is light, with the focus on the monthly Challenger report on job cuts. Fed Board Governor Randall Kroszner speaks on mortgage lending issues at 1620 GMT.

The surge in Treasuries has run into a wall in the past few weeks as the Fed's big rate cuts, as well as hopes that troubled U.S. bond insurers will be rescued, have underpinned stocks and spurred selling of safe-haven government debt.

Sources told Reuters that a group of large banks has joined together to find ways to shore up Ambac Financial Group, while another group is looking at ways to rescue other bond insurers. [ID:nN01161241]