* Treasuries set highest gain among US bonds in April * Euro zone worries grow as Spanish economy shrinks * U.S. Midwest business data weaker than expected * Month-end index buying seen adding bids for bonds By Ellen Freilich NEW YORK, April 30 U.S. Treasury debt prices rose on Monday as anxiety over economic weakness in Europe and slower growth in the United States led investors to favor lower-risk investments over stocks and other risky assets. The pattern of weaker-than-expected U.S. economic data and consequent lower yields on the last day of the month was the narrative in a nutshell for the U.S. Treasury market all month. That story of slower U.S. growth and worries about Europe allowed the U.S. benchmark 10-year yield to fall from 2.31 percent in the earliest trading sessions of the month to 1.93 percent late on Monday, a fall of nearly 40 basis points and its biggest monthly drop since last September. "For Treasuries, this month was a fast-forward version of what we saw in the second half of last year which was that a relatively sunny first half of 2011 suddenly went dark and the Federal Reserve quickly shifted into quantitative easing mode," said Robert Tipp, chief investment strategist for Prudential Fixed Income that has more than $330 billion in assets under management. "And 2011 was the second year in a row that a seemingly bright start to the year came unraveled by the fall." Twice burned, the financial markets took to heart the weaker-than-expected March U.S. non-farm payrolls report released in early April. "That, along with ongoing trouble in Europe, seemed to be all the market needed to assume we would get a replay of the 2010 and 2011 third-quarter script which was lower interest rates and a flight to quality," Tipp said. On Monday, a weaker-than-expected private-sector report on business activities in the Chicago region in April fed concern that the world's largest economy was experiencing a spring growth deceleration for a third straight year, one that could prompt more large-scale bond purchases by the Federal Reserve. The Institute for Supply Management-Chicago said its index of Midwest business activity fell to 56.2 in April, the lowest since November 2009. "Growth is beginning to fade around the world," said Justin Hoogendoorn, fixed income strategist at BMO Capital Markets in Chicago. Overseas worries were reflected in the bond market as well. Concern about Europe slipping into a recession intensified after Spain's economy contracted in the first three months of the year. Spain's fiscal woes deepened after Standard & Poor's cut the credit ratings of 11 Spanish banks on Monday following its downgrade of Spain last week. "While you're on this kind of steep incline, you're unlikely to see Treasury rates break higher," said Tipp. "There's just too much downside risk on the global investment stage." On below-average trading volume, benchmark 10-year notes traded up 5/32 in price to yield 1.93 percent. Thirty-year bonds rose 6/32 in price, their yields easing to 3.12 percent from 3.13 percent at Friday's close and, sharply, from 3.44 percent in early April. Bets grew that there would be more central bank help to avert a recession across Europe. Treasuries slightly lagged German Bunds with their 10-year yield premium over 10-year Bunds widening about 1 basis point near 25 basis points. Purchases from fund managers to rebalance their portfolios at month-end should keep benchmark yields at their lowest levels since early February, analysts said. "Everyone knows the negatives. No one sees the answers yet," said Carl Kaufman, portfolio manager at Osterweis Capital Management in San Francisco, which oversees about $5 billion. Treasuries staged a comeback in April - pushing prices higher and yields lower - on revived worries about the festering euro zone debt crisis and signs of slowing U.S. economic growth. Through Friday, Barclays' Treasuries total return index has risen 1.38 percent in April, making it the best U.S. bond category in April. It also wiped out its first-quarter loss, bringing its year-to-date result into positive territory. Another supportive factor for longer-dated Treasuries is the ongoing purchases from the Federal Reserve for "Operation Twist," which is its $400 billion program aimed to hold down mortgage rates and other long-term borrowing costs. The Fed said on Monday it will buy about $45 billion worth of Treasuries and sell about $43 billion of Treasuries in May. While the recent spate of disappointing data on the U.S. and Europe has supported demand for Treasuries, analysts said the figures are not dire enough to push yields into a new, lower trading range because longer-term inflation expectations have remained in line with the Fed's implicit target of 2 percent.