* Bond market recovers on weaker stocks, dollar
* Speculation over Fed’s bond purchases limits rebound
* U.S. Fed to buy up $1.75 billion in long-dated Treasuries
By Richard Leong
NEW YORK, May 20 (Reuters) - U.S. government debt prices rose on Monday, rebounding from last week’s selloff as Wall Street stocks retreated from record highs and the dollar weakened against the yen, offering few alternatives to bonds.
Speculation about whether the U.S. Federal Reserve will begin slowing its bond purchases later this year capped the rebound, however, as analysts have become more comfortable with the view that the economy is on a firmer footing and job growth is on a sustainable path.
“The combination of lower equities and a stabler yen has allowed some retracement of the bond prices’ fall on Friday,” said Mike Cullinane, head of Treasuries trading in D.A. Davidson in St. Petersburg, Florida.
Benchmark 10-year Treasuries notes last traded up 6/32 in price at 1.933 percent, down 2.1 basis points from late Friday. The 10-year yield was as high as 1.972 percent earlier, just 1 basis point below the two-month peak set last week due to stronger stock prices and a surging dollar.
The greenback retreated against the yen and other major currencies after Japan’s economy minister Akira Amari remarked its currency might have weakened enough in the wake of a bold $1.4 trillion monetary plan announced in April. The yen fell to 4-1/2-year low against the dollar last week.
Wall Street stocks opened lower with the Standard & Poor’s 500 down 0.1 percent from its all-time high.
Traders and analysts anticipated the Treasuries market will likely move in a tight range until Wednesday, as it awaited clues on where the U.S. central bank stands on quantitative easing from Fed Chairman Ben Bernanke who will testify about the economy before a Congressional panel on Wednesday.
While the Fed’s aggressive purchases of Treasuries and mortgage-backed securities, currently at $85 billion a month, known as QE3, have helped the housing market and consumers and companies to pay down their debt, they have fallen short of achieving the goals of substantially lowering unemployment and sustaining real economic growth, analysts said.
Since late last year, there have been discussions among Fed policy-makers over the cost of sticking to this ultra-easy monetary scheme, which critics said is inflationary.
While the Fed’s QE3 have boosted stocks and helped the rich, it is unclear whether they are doing enough for the broader U.S. economy, Dallas Fed President Richard Fisher told CNBC television on Monday. Fisher has been an opponent of the Fed’s asset purchase program.
“There is some impending fear that the Fed will taper its bond purchases,” said Robbert Van Batenburg, director of market strategy at Newedge USA LLC in New York.
Many analysts on Wall Street, however, reckoned the Fed will unlikely back away from its commitment to bond purchases this year with unemployment still high and recent data suggesting higher risk of deflation.
At 11 a.m. (1500 GMT), the U.S. central bank will buy $1.25 billion to $1.75 billion in Treasuries that come due in Feb. 2036 to May 2043 for its QE3 program.