TREASURIES-Rise in Asia on stock fall, inflation data eyed

By Rika Otsuka

TOKYO, May 20 (Reuters) - U.S. Treasuries rose in Asia on Tuesday, supported by a fall in regional stock markets, while many investors waited to see if a report on producer prices due later in the day will fuel inflation concerns.

More investors are shifting their sights to a Federal Reserve interest rate rise by the year-end due to a sharp rise in food and oil prices that has been boosting views that the central bank's grip on energy-driven inflation is slipping.

Some market players believe the producer price data could trigger bond selling, sending the benchmark 10-year yield to 4 percent if figures are higher than forecast.

"Given large inflation worries, the 10-year yield could try the key level after the data," said Akihiro Nishida, a senior economist at Mitsubishi UFJ Securities.

Benchmark 10-year notes US10YT=RR climbed 2/32 in price to yield 3.824 percent, dipping 1 basis point from late Monday U.S. trade. The 10-year yield rose briefly above 3.98 percent last week, the highest in the year to date.

June T-note futures TYv1 rose 4.5/32 to 115-17.5/32, staying above a four-month low of 114-10/32 hit last week.

Two-year notes US2YT=RR were up 1/32 in price to yield 2.382 percent, slipping about 2.5 basis points. The two-year yield is still nearly 40 basis points above the central bank's fed funds rate.

In the stock market, the MSCI broad measure of Asian stocks outside Japan .MIAPJ0000PUS slid 0.8 percent. [MKTS/GLOB]

Tokyo's Nikkei share average .N225 fell 0.3 percent by midday after posting a four-month closing high the previous day.

Economists surveyed by Reuters estimate on average that the producer price index rose by 0.4 percent in April from the previous month.

Economists' median forecast is for the core reading, which excludes food and energy, to rise 0.2 percent. The data is due at 1230 GMT.

After the PPI data, the market's attention is expected to move to the minutes of the Fed's April policy meeting due on Wednesday for hints on Fed officials' views on inflation risks, the outlook for the economy and the central bank's future monetary policy path.

The Fed, which cut interest rates by 25 basis points to 2.0 percent in April, has slashed interest rates by 3.25 percentage points since last September as crises in the housing and credit markets last year pushed the economy towards recession.

Many investors now expect the Fed to take a pause from lowering interest rates and start raising them later in the year. (Editing by Michael Watson)