TREASURIES-Edge higher in Asia, eyes on equities and PPI

By Masayuki Kitano

TOKYO, Feb 26 (Reuters) - U.S. Treasuries edged higher in Asia on Tuesday, but gains were limited as worries about downgrades of top U.S. bond insurers receded, soothing concerns about further damage to ailing credit markets.

Treasuries regained some ground, after falling sharply on Monday as equities rallied after Standard & Poor's removed its threat to downgrade MBIA (MBI.N: Quote, Profile, Research, Stock Buzz) Inc's "AAA" rating.

But worries over bond insurers have not disappeared. S&P said the main unit at Ambac Financial Group Inc (ABK.N: Quote, Profile, Research, Stock Buzz), the second-largest bond insurer, may still lose its top ratings. [ID:nN25266631]

Market players are now focusing on the outcome of a possible rescue for Ambac, which is making an effort to raise new capital.

Moves in share prices as well as data on producer prices due later on Tuesday will also draw investors' attention.

"On balance the market's overall stance seems to be to sell on rallies, since investors have already braced themselves for what might happen in the worst case," said a senior trader for a U.S. investment bank, referring to the tumult in credit markets.

Benchmark 10-year Treasuries rose 4/32 in price to yield 3.895 percent <US10YT=RR>, compared with 3.910 percent in late U.S. trading on Monday.

Thirty-year bonds rose 6.5/32 in price to yield 4.653 percent <US30YT=RR>, down from 4.666 percent late in New York.