* Prices gain as weak European data spurs buying * Bonds briefly pare price gains as U.S. jobless claims fall * Treasury will sell $16 billion in new 30-year bonds * Fed buys $5.15 billion in debt due 2017-2018 By Karen Brettell NEW YORK, Feb 14 (Reuters) - U.S. Treasuries yields edged back from 10-month highs on Thursday after data showed that the euro zone's two largest economies shrank more than expected late last year, helping boost demand for lower risk debt. The German economy contracted 0.6 percent in the final quarter of 2012, the worst performance since 2009, while France's shrank 0.3 percent, which was slightly worse than forecast. The news pushed the euro down against the dollar and boosted bond buying, helping benchmark 10-year note yields fall from 10-month highs of 2.06 percent reached in overnight trading. "Treasuries followed the rally in (German) bunds, which was driven by weak GDP data," said Carl Lantz, an interest rate strategist at Credit Suisse in New York. The debt briefly pared some price gains after data showed that the number of Americans filing new claims for unemployment benefits fell more than expected last week, pointing to a continued steady improvement in labor market conditions. "The market is viewing this as another sign that economic momentum continues to be reasonably strong. Jobs are key because of the Fed focus on unemployment and because now we need labor income to continue to be quite strong because that will help offset the negative spending implications of the payroll tax increase," Lantz said. Ten-year notes were last up 7/32 in price to yield 2.04 percent. The notes have been pushing up against technical support at around 2.03 percent to 2.06 percent, which is the top end of their trading range for the past few weeks. A break above this level could send yields up towards the 2.20 percent area, analysts and traders said. Price gains came even as the Treasury prepared to sell $16 billion in 30-year bonds on Thursday, it final sale of $72 billion in new coupon bearing debt this week. Thirty-year bonds rose 15/32 in price to yield 3.21 percent. Traders expect the new bonds to price stronger at around 3.20 percent, according to trading in the "when issued" market. Some investors see Treasuries yields as likely to ease after the supply is absorbed, with automatic budget cuts, scheduled to come into effect on March 1, likely to come under increasing focus. The cuts, if implemented, are expected to reduce economic growth, which could send rates back lower. At the same time, calmer European debt markets, still steady economic improvement in the United States and questions over when the Federal Reserve will end its ongoing bond purchase program, or quantitative easing, are leading others to price for an uptick in yields this year. "There's kind of a tug of war between people that feel that the sequester cuts coupled with higher taxes and the headwinds of global growth are going to slow down growth enough so that Treasuries will remain at a fairly low level," said John Fath, managing partner at BTG Pactual in New York. "Others feel that at some point, there is a cost to QE and that at some point the Fed is going to realize that those costs are overwhelming the benefits," he added. The Federal Reserve bought $5.15 billion in debt due 2017 to 2018 on Thursday as part of its quantitative easing effort, the last purchase scheduled for this week. The Treasury also said that it will sell $9 billion in 30-year Treasury Inflation-Protected Securitites (TIPS) next Thursday.