TREASURIES-Ease in Asia, 2-year yields touch record low

* Two-year yields off record low hit in early Asia trade

* Fed rate cut view supports 3-month bills, 2-year bonds

* Slide in Asian stocks, credit concern keep safety bids

By Chikako Mogi

TOKYO, Nov 20 (Reuters) - U.S. Treasuries eased on Thursday after two-year yields hit a record low in early Asian trade on expectations the Federal Reserve will cut interest rates next month in an attempt to shore up the faltering economy.

Federal Reserve officials have pared their outlook for economic growth through 2009 to minimal levels and are ready to cut interest rates further, minutes of the Fed's Oct. 28-29 meeting released on Wednesday showed.

The Fed expects U.S. growth to contract in the second half of 2008 and the first half of 2009. [ID:nN19340273]

Worries over the economy were compounded by credit jitters fuelled by mounting uncertainty over the fate of the struggling U.S. auto industry, intensifying investors' bid for the safety of government debt securities.

"The market remains supported by the flight-to-quality incentive from investors as they sell risk assets for cash or for safe assets such as Treasuries," said Hideki Hayashi, chief economist at Shinko Securities.

"Shorter-dated bonds and bills are particularly strong, as the Fed expects the U.S. economy to be in recession and is keeping its stance to lower interest rates," he said. "It's a favourable environment for funds to flow into Treasuries."

The two-year yield US2YT=RR fell to a record low of 1.0685 percent in early Asian trade on Thursday, according to Reuters data. By midday in Tokyo it was at 1.093 percent, up 2 basis points from late U.S. trading on Wednesday.

The benchmark 10-year yield was at 3.35 percent US10YT=RR, inching up 1 basis point from late New York.

Data on Wednesday showed the U.S. consumer price index fell 1.0 percent last month, a record drop. [ID:nN18276780]

Investor confidence was also hurt by fears of a rapid deterioration in commercial real estate, which could lead to more write-downs for banks and renewed stress in credit markets. Data showed on Wednesday that October housing starts fell 4.5 percent.

Growing uncertainty over whether U.S. automakers, including General Motors GM.N, will win emergency government loans fuelled concerns about the credit crunch ahead of the year-end, lending support to three-month Treasury bills.

The three-month Treasury bill rate fell to 0.056 percent in early Asia trade on Thursday, the lowest since the collapse of U.S. investment bank Lehman Brothers in mid-September, but was at 0.l3 percent, up from 0.06 percent at late U.S. trade. (Additional reporting by Masayuki Kitano; Editing by Michael Watson)