(Corrects FOMC meeting dates in paragraph 13)
* U.S. GDP growth improves to 2.5 pct in Q1 but less than
* U.S. consumer sentiment weakens less than forecast in
* Benchmark yields fall but hold above four-plus-month lows
* U.S. Fed resumes bond purchases with $3.38 bln buy
By Richard Leong
NEW YORK, April 26 U.S. Treasuries prices
rallied on Friday after data showed the U.S. economy grew at a
slower-than-expected pace in the first quarter, stoking more
bets the Federal Reserve might consider more stimulus at its
policy meeting next week.
Also fueling the rise in bond prices, which pushed benchmark
yields near their lowest levels of the year, were worries about
the debt crisis in Europe. Spain, the euro zone's fourth-biggest
economy, said earlier its domestic growth will contract more
than previously forecast at a rate of 1.3 percent this year
while unemployment will hold at record high.
"Everyone has been focused on the negatives like Spain and
its drag on Europe," said Richard Schlanger, portfolio manager
with Pioneer Investments USA in Boston.
Concerns over slowing economic growth and its impact on
corporate profits hurt Wall Street shares, raising the safe
haven allure of Treasuries. The Standard & Poor's 500 index
was down 0.4 percent in midday trading.
Another factor that propelled bond prices higher was the
return of the Fed buying Treasuries on the open market after it
skipped buying bonds on Thursday.
The U.S. central bank bought $3.378 billion in bonds that
will mature in August 2020 to Feb. 2023.
The scheduled purchase was the latest for the Fed's bond
program, dubbed QE3, which was intended to hold down long-term
borrowing costs and to reduce unemployment.
Benchmark 10-year Treasuries notes last traded
13/32 higher in price at 103, yielding 1.665 percent, down 4.5
basis points from late on Thursday.
The 10-year yield was about 2.5 basis points above a
four-plus month low set on Tuesday. It was on track to fall
about 4 basis points from a week earlier, according to Reuters
The 30-year bond traded 29/32 higher at 105-9/32
with a yield of 2.860 percent, down 4.4 basis points on the day.
The 30-year yield was set to dip 2 basis points on the week.
Friday's drop in longer-dated yields failed to set fresh
multi-month lows, suggesting that some traders had anticipated a
disappointing reading on first-quarter U.S. gross domestic
product in the wake of a spate of weaker-than-expected economic
"The thoughts about slower growth and disinflation have been
mostly priced at these levels," said Mike Cullinane, head of
Treasuries trading at D.A. Davidson in St. Petersburg, Florida.
"If we were to see another month of weak data, we could see
yields grind lower."
He and many analysts said bond investors are waiting for
signals from Fed policy-makers after they hold their meeting
next Tuesday and Wednesday. Some reckoned chairman Ben Bernanke
and other top Fed officials will shift their focus back to
buying more bonds to help an economy that continues to grow
below expectations, instead of drawing up a plan to begin
reducing stimulus, something that they have discussed at their
policy meetings in recent months.
"Until the Fed indicates they will tighten policy, short-end
yields is going nowhere and it will keep a bid on the long-end,"
Pioneer's Schlanger said.
This steady demand from investors was shown at the auctions
of $99 billion longer-dated Treasuries this week.
Fed officials will likely be troubled by Friday's set of
disappointing economic reports, analysts said.
The Commerce Department said first-quarter GDP grew at an
annualized 2.5 percent, slower than the 3.0 percent rate
forecast by analysts but stronger than the 0.4 percent pace set
in the fourth quarter.
Much of the first-quarter GDP gain was a result of a solid
3.2 percent rise in consumer spending, but the outlook on the
consumer has been clouded by worries about drag from the
expiration of the payroll tax holiday early this year and a
sluggish jobs market.
Readings on consumer confidence, which are seen as proxies
on future spending, have deteriorated since the second quarter
began. Thomson Reuters and University of Michigan said its index
on consumer sentiment ended April at 76.4, higher than the
preliminary reading of 72.3 but below the 78.6 in March.
(Reporting by Richard Leong; Editing by Chizu Nomiyama and