TREASURIES-Edge up in Asia after grim U.S. data

* Supported after dismal U.S. economic data on Thursday

* Supply concerns cap bond market's upside

By Shinichi Saoshiro

TOKYO, Oct 17 (Reuters) - U.S. Treasuries edged higher in Asia on Friday, supported by grim economic data released in the United States the previous day that fuelled concerns of a protracted recession.

Industrial output posted the biggest monthly decline since 1974 in September, the data showed, while a Philadelphia Federal Reserve report showed U.S. Mid-Atlantic factory activity in October fell to an 18-year low.

The two-year note US2YT=RR edged up 1/32 in price to yield 1.613 percent, down 1.5 basis points from late U.S. trade on Thursday.

The benchmark 10-year note US10YT=RR climbed 9/32 in price to yield 3.935 percent, down 3 basis points.

Supply concerns and a bounce in equities capped bond gains, particularly in longer-dated maturities.

Japan's Nikkei share average .N225 was up 1.5 percent at midday after posting its biggest one-day decline since the 1987 market crash on Thursday, buoyed by gains in Wall Street the previous day.

"Latest U.S. economic indicators certainly do paint a gloomy picture for the U.S. economy, but supply concerns are also eroding the safe haven status of Treasuries," said Keisuke Fukuda, a fixed-income strategist at Mitsubishi UFJ Securities.

Supply worries have dogged bonds as the U.S. government has embarked on a massive bailout of banks to stave off a financial sector collapse. The rescue plans have raised concern of heavy government borrowing.

Analysts say concerns over extra issuance have left a particular impact on the two ends of the yield curve this week.

The U.S. one-month bill rate US1MT=RR rose 1.5 basis points on Friday. The U.S. Treasury has sold a total of $194 billion in cash management bills this week and plans to sell another $60 billion later on Friday.

Thirty-year bonds US30YT=RR edged up 3/32 in price to yield 4.248 percent from late Thursday's 4.254 percent. The 30-year bond underperformed on Thursday, with its yield rising 5 basis points.

The short end of the yield curve could fare slightly better due to expectations of an interest rate cut by the Federal Reserve, Fukuda at Mitsubishi UFJ Securities said.

The Fed cut interest rates by half a percentage point to 1.5 percent last week and is expected to ease further at a meeting on Oct. 28-29. (Editing by Michael Watson)