TREASURIES-Prices up as weak economy seen curbing inflation

* U.S. Treasuries up; economy seen damping inflation

* July CPI seen as peak; headline inflation seen ebbing

* Late price-cutting on Wednesday anticipated CPI rise

* Economists see steady Fed policy this year (Updates prices, adds comments)

By Ellen Freilich

NEW YORK, Aug 14 (Reuters) - U.S. Treasuries prices rose on Thursday on perceptions that a slow economy and receding commodity prices would allow inflation to ebb and let the Federal Reserve keep interest rates unchanged until next year.

A bigger-than-expected 0.3 percent rise in the core Consumer Price Index, the CPI without its food and energy items, was released early in the session and startled bond traders enough to provoke a brief flurry of selling.

But the selling was short-lived, partly because investors believe weaker global growth and the recent pullback in oil will lead to more subdued inflation readings in coming months. Also, Treasuries had already given up ground on Wednesday when a one-day rally in oil prices revived inflation worries.

"The market believes weak growth and weakened demand will arrest inflation," said Josh Stiles, senior bond strategist at IDEAglobal in New York. "That's why Treasuries survived that 0.3 percent increase in core CPI."

A government report showing another hefty batch of new claims for jobless benefits last week reinforced the risks to economic growth.

While the number of U.S. workers filing new jobless claims fell by 10,000 last week to 450,000, they remained at levels that showed labor markets under severe strain.

Most economists consider readings above 400,000 for weekly claims as indicating recession-like conditions.

"Certainly the high level of jobless claims mitigated the impact of the high CPI," said John Canavan, analyst at Stone & McCarthy Research Associates in Princeton, New Jersey.

The labor market weakness reinforced the view that the Fed would keep interest rates steady to preserve economic growth.

"If inflation moderates along with the commodity markets, monetary policymakers will probably focus more on the housing problems and worry less about inflation," said Gary Thayer, senior economist at Wachovia Securities in St. Louis, Missouri. "That will allow the Fed to hold interest rates steady into the early part of next year."