TREASURIES-Dip in Asia, two-year yield stays near 3-mth highs

By Masayuki Kitano

TOKYO, April 25 (Reuters) - U.S. two-year Treasury yields held near three-month highs in Asia on Friday as signs of the U.S. economy's resilience supported expectations that the Federal Reserve may soon take a break from cutting interest rates.

Treasuries were mostly lower and the 10-year yield rose back towards a two-month high hit on Thursday, after jobs and factory data suggested that a slump in the housing market and credit market turmoil may not be hurting the economy as much as feared. [ID:nN24402636]

"There is a growing perception that jitters over the financial sector may have a relatively limited pact on the real economy, and that a rate cut to 2.0 percent would be sufficient," said Yasutoshi Nagai, chief economist for Daiwa Securities SMBC.

"If that is the case, it would not be surprising to see two-year yields rise toward around 2.5 percent," Nagai said.

The two-year note was little changed in price from late U.S. trading on Thursday to yield 2.411 percent <US2YT=RR>, staying above the Fed's 2.25 percent target for the federal funds rate.

The Fed has cut interest rates by 3 percentage points starting last September, when it cut the federal funds rate to 4.75 percent from 5.25 percent.

The two-year yield hit a high of 2.44 percent on Thursday, the highest since Jan. 18, and had finished the day above the federal funds rate for the first time since June 2006.

The 10-year note fell 3/32 in price to yield 3.847 percent <US10YT=RR>, rising 1 basis point from late New York, and near a two-month high of 3.87 percent hit on Thursday.