* U.S. jobless claims drop to 5-1/2-year low
* Fed statement offered no hint of a pullback in bond buys
* Market focused on U.S. nonfarm payrolls data due Friday
* ISM manufacturing index due 1400 GMT forecast at 52.0
By Ellen Freilich
NEW YORK, Aug 1 U.S. Treasuries prices extended
early losses on Thursday after the government reported the
number of newly jobless Americans fell to a 5-1/2-year low in
the latest week.
The retreat erased the previous day's gains, scored after
the Federal Reserve gave no hint of a pullback in bond buying at
the end of a two-day policy meeting.
"After a dovish FOMC statement, bonds were hurt by a
better-than-expected weekly claims report," said Cary Leahey,
senior advisor to Decision Economics in New York. "The latest
level of new claims, if sustained, would be the lowest since
2007 when all our problems began."
The U.S. Labor Department said the number of Americans who
filed new claims for state unemployment benefits in the week
ended Saturday fell to 326,000, a 5-1/2-year low, from a revised
345,000 a week earlier.
Responding to the news, the benchmark 10-year Treasury note
, down 5/32 before the report, was down 13/32 after
the report, pushing its yield up to 2.64 percent.
The 30-year bond, down 17/32 before the report,
was down 29/32 afterwards, pushing its yield up to 3.70 percent.
"Bond prices are suffering losses as traders are using this
surprise drop in jobless claims to set up short Treasuries
positions for tomorrow's jobs report," said Thomas di Galoma,
one of the heads of bond trading at ED&F Man Capital Markets.
Leahey said the drop in new jobless claims bolstered
forecasts for July payroll growth of 200,000 jobs in a report
due from the U.S. Labor Department this Friday.
But economic growth will have to "perk up" for the Fed to
starting trimming its large bond purchases - intended to foster
economic growth - as soon as September, Leahey added.
In its statement released on Wednesday, the Fed said the
U.S. economy continues to recover, but still needs support. For
now, the U.S. central bank will keep buying $85 billion in
mortgage and Treasury securities per month to bolster the still
U.S. Treasury yields have shot up since May, when
policymakers began suggesting the Fed could slow the pace of its
asset buying as the economy grows stronger.
While the U.S. economy grew at a faster-than-expected rate
in the second quarter, the first quarter's expansion was revised
More clarity on the health of the labor market will come on
Friday with the government's release of July nonfarm payrolls
The market will also pay attention to the Institute for
Supply Management manufacturing index due at 10 a.m. EDT (1400
GMT) Thursday. The index is expected to read 52.0 for July,
showing manufacturing expanded, up from a reading of 50.9 in