TREASURIES-Climb in Asia before ADP employment report

By Masayuki Kitano

TOKYO, March 5 (Reuters) - U.S. Treasuries climbed on Wednesday as investors awaited reports on private-sector employment and services activity later in the day for clues on how deeply the Federal Reserve will cut interest rates.

The gains pushed the yield on two-year notes back towards a four-year low near 1.50 percent hit in Tuesday's volatile session as investors expect aggressive monetary easing.

Worries about financial institution losses from turmoil in global credit markets is likely to continue to support two-year notes, said Yasutoshi Nagai, chief economist for Daiwa Securities SMBC's fixed-income, currency and commodities research department.

"Fed officials in Washington sound pretty pessimistic and I think that will prompt market players to think that such problems will not be resolved very soon," Nagai said.

Fed Governor Frederic Mishkin said on Tuesday that signs of sluggish consumer and business spending and the potential for a deeper housing downturn and credit contraction pose serious risks to the U.S. economic outlook. [ID:nWBT008528]

Two-year yields could dip back towards 1.5 percent if the private-sector ADP national employment report due later on Wednesday and the government's jobs data to be released on Friday are weak, Nagai said.

Two-year notes rose 3/32 in price to yield 1.627 percent <US2YT=RR>, down 4 basis points from late U.S. trade but holding above the four-year low of 1.503 percent hit on Tuesday.

Reflecting ongoing strains in the banking system and credit markets, the two-year U.S. swap spread was 99 basis points <USD2YTS=RR>, widening back near record levels hit late last year.