TREASURIES-Steady in Asia, eyes on inflation data

By Satomi Noguchi

TOKYO, Feb 20 (Reuters) - U.S. Treasuries were steady on Wednesday in Asia after falling sharply overnight when oil surged to a record high above $100 a barrel, stirring inflation worries.

While Asian stocks dropped following losses on Wall Street, providing some support to government bonds, 30-year Treasury yields remained near three-month highs as investors awaited consumer price data due later in the day.

U.S. recession fears stemming from hefty subprime-related losses at financial companies had fuelled expectations the Federal Reserve would continue to cut interest rates aggressively.

But the jump in oil prices has heightened concerns over inflation risks and led investors to reassess their bets that the Fed will be able to lower benchmark rates as low as 2.00 percent, hurting prices of short-term Treasury notes.

"The market has been excessively pessimistic about the outlook for the U.S. economy and too optimistic about inflation risk," said Minako Iida, a bond strategist at Barclays Capital.

"We are now seeing a shift in sentiment between the two."

The 30-year Treasury notes <US30YT=RR> were little changed in price to yield 4.665 percent, flat from late New York trade on Tuesday when the yield rose as high as 4.6932 percent, near a three-month high.

Benchmark 10-year notes <US10YT=RR> inched up 3/32 in price to yield 3.896 percent, down a basis point but staying in sight of Tuesday's high of 3.9153 percent, the highest since Jan. 4.