TREASURIES-Slip in Asia as equities rise

By Masayuki Kitano

TOKYO, July 9 (Reuters) - U.S. Treasuries dipped in Asian trading on Wednesday as regional stock markets rose, triggering some selling of safe haven government debt.

Treasuries have rallied over the past month as investors pared expectations for the Federal Reserve to raise interest rates in coming months due to concerns about the economic outlook and ongoing strains in credit markets.

But short-term Treasuries dipped on Tuesday as share prices rose due to a pullback in oil prices and after Fed Chairman Ben Bernanke said in a speech that he may keep open a lifeline for Wall Street firms past year-end. [US/]

The director of the top regulator of mortgage finance providers Fannie Mae (FNM.N) and Freddie Mac (FRE.N) on Tuesday asserted that an accounting rule change should not drive a capital change at government-sponsored entities like Fannie and Freddie [ID:nN08371498]. That lifted the hard-hit shares of those firms, crimping the bid for government debt.

Treasuries could face more pressure if oil prices retreat further and ease worries about the impact on consumer spending, said Yasutoshi Nagai, chief economist for Daiwa Securities SMBC.

"One key is the outlook for oil prices. I get the sense that they may be close to peaking out," Nagai said.

"If that turns out to be the case, the economy should improve," he said.

While Treasury yields are unlikely to break sharply above their recent trading ranges soon, the benchmark 10-year yield could rise towards 4.3 percent over the next month, Nagai said.

The two-year note, the sector most sensitive to shifts in expectations on monetary policy, dipped 1/32 in price to yield 2.512 percent US2YT=RR, up nearly 3 basis points from late U.S. trading on Tuesday.

The benchmark 10-year note fell 2/32 in price to yield 3.898 percent US10YT=RR, rising 1 basis point from late New York.

In the stock market, the MSCI's broad measure of stocks outside Japan rose over 2 percent .MIAPJ0000PUS.

U.S. crude oil futures CLc1 steadied after tumbling more than $5 on Tuesday on pressure from a stronger dollar and forecasts that eased worries about a major Atlantic hurricane damaging oil facilities.

As oil has retreated since the start of the week, the expected annual rate of U.S. consumer prices reflected in five-year inflation-protected bonds US5YTIP=TWEB compared with regular five-year Treasuries has fallen about 20 basis points to near 2.56 percent.

In the near-term, worries over financial institutions' losses from the credit market turmoil could support Treasuries ahead of earnings announcements by major U.S. banks next week, said Daiwa SMBC's Nagai. [RESF/US] (Editing by Brent Kininmont)