TREASURIES-Mixed in Asia as equities, oil eyed

By Masayuki Kitano

TOKYO, May 22 (Reuters) - U.S. Treasuries were narrowly mixed in Asian trading on Thursday, caught between falls in regional share prices and a surge in oil prices to record highs.

Treasuries took a breather after falling on Wednesday when minutes from the Federal Reserve's last policy meeting reinforced investor expectations that the Fed would pause lowering interest rates and stand pat for a while.

The shape of the yield curve was mostly steady from Wednesday, when there was a bearish flattening in the curve as short-term yields rose more than yields at the longer end.

"We've flattened on the curve and can expect more of that," said a senior trader for a European investment bank. The benchmark 10-year Treasury note dipped 1/32 in price to yield 3.810 percent US10YT=RR, hardly budging from late U.S. trading.

The two-year note was unchanged in price to yield 2.411 percent US2YT=RR, steady from late New York. The two-year/10-year yield spread stood at around 140 basis points, little changed from late U.S. trading on Wednesday but down from around 147 basis points on Tuesday.

If the yield spread falls to below 137 basis points, that would take it to the lowest in about four months.

Moves in Treasuries were mild compared with equities and oil.

Crude oil soared to a record high above $135 per barrel CLc1. In the stock market, the MSCI broad measure of Asian stocks outside Japan fell 1.3 percent .MIAPJ0000PUS. The Federal Reserve on Wednesday slashed its U.S. economic growth forecast for 2008 and signaled that mounting concerns over inflation would make further interest rate cuts unlikely. [ID:nN21438129]

U.S. short-term interest rate futures show expections for no imminent change from the Fed, but point to rate increases in the final months of the year. [FEDWATCH]

(Editing by Brent Kininmont)