TREASURIES-Futures slip in Asia on rate outlook,job data eyed

By Rika Otsuka

TOKYO, June 6 (Reuters) - U.S. Treasury futures slid in Asia on Friday as investors trimmed government debt holdings on views that inflation pressure could prompt the U.S. and euro zone central banks to raise interest rates in the coming months.

A rise in regional share prices also encouraged investors to shift money to equities from bonds.

Activity was light, however, as market players awaited the Labor Department's monthly employment report for May at 1230 GMT for clues on whether the economy is solid enough for the Federal Reserve to lift interest rates in its fight against inflation.

Treasuries fell on Thursday after a surprise drop in weekly jobless claims soothed recession fears and on growing expectations that the Fed will raise interest rates from the current 2 percent by the year-end.

Treasuries were also under pressure after European Central Bank President Jean-Claude Trichet hinted the previous day at a possible rate increase by the euro zone central bank as soon as next month to control price rises.

"The comments by Trichet still weigh heavily on Treasuries," said Yasutoshi Nagai, a senior economist at Daiwa Securities SMBC.

"Treasuries are likely to rebound in the short term as the monthly employment figures are expected to be weak. But long-term Treasury yields are clearly on a rising trend," Nagai said.

Economists expect the U.S. labour market to have shrunk by 58,000 jobs in May after a contraction of 20,000 in April.

September T-note futures TYv1 were down 4.5/32 to 113-03.5/32.

Benchmark 10-year notes US10YT=RR were unchanged in price to yield 4.044 percent. Two-year notes US2YT=RR were also flat to yield 2.511 percent.

Tokyo's Nikkei share average .N225 rose 1.6 percent by midday.

Trichet's comments echoed concerns expressed by Fed Chairman Ben Bernanke earlier this week.

Bernanke said on Wednesday that overall inflation was significantly higher than the central bank would prefer and the rise in long-term inflation expectations was a significant concern. Those comments came just a day after he warned of inflation risks from a weaker dollar.

Short-term interest rate futures now show a zero percent chance of a 25-basis-point rate cut in June, while implying a chance of the Fed lifting interest rates to 2.25 percent from the current 2 percent in the fourth quarter.

Meanwhile, Treasuries were supported by renewed credit concerns after a series of headlines stoked fears about more bank losses linked to the slumping housing market and credit tightness this week.

On Thursday, Standard & Poor's downgraded the financial strength ratings of bond insurers MBIA (MBI.N) and Ambac Financial (ABK.N). (Editing by Michael Watson)