March 13, 2014 / 5:50 PM / 3 years ago

TREASURIES-Prices hit 1-week high as tensions heighten over Crimea

* Kerry remarks send yields lower

* Weak China growth supports safe-haven demand

* U.S. jobless claims lowest since late November

By Sam Forgione

NEW YORK, March 13 (Reuters) - Longer-dated U.S. Treasuries prices rallied to their highest levels in over a week on Thursday on heightened tensions over a U.S.-European response against Russia if a referendum in Ukraine's Crimea region goes ahead.

U.S. Secretary of State John Kerry said Thursday that a "serious series of steps" would be imposed on Monday by the United States and Europe if a referendum on Crimea joining Russia takes place on Sunday as planned.

Russia also launched new military exercises near its border with Ukraine, showing no sign of backing down in its plans to annex its neighbor's Crimea region despite a stronger than expected drive for sanctions from the EU and United States.

The flaring tensions between the U.S. and Russia contributed to a risk-off tone, said Gabriel Mann, U.S. Treasuries Strategist at RBS Securities in Stamford, Connecticut.

Continued concerns over China's economic growth also worried investors. Growing jitters about the financial health of bloated industries in China have prompted many banks to cut lending in these sectors by as much as 20 percent, sources said.

China's industrial output rose 8.6 percent in the first two months of 2014 from a year earlier, the National Bureau of Statistics said on Thursday, missing market expectations for a 9.5 percent rise, while growth in retail sales was the slowest in three years.

The benchmark 10-year U.S. Treasury note last traded up 19/32 in price to yield 2.658 percent, up in price from late Wednesday, when the yield was at 2.726 percent. Bond yields move inversely to their prices.

The yield on the 30-year Treasury bond, meanwhile, last traded up 1-2/32 in price to yield 3.609 percent, up from 3.668 percent late Wednesday.

The rise in prices on longer-dated Treasuries to their highest since March 4 erased a dip earlier in the day after the release of better-than-expected U.S. retail sales and jobless claims data.

The Commerce Department said retail sales increased 0.3 percent last month as receipts rose in most categories, ending two straight months of declines, while the Labor Department said initial claims for state unemployment benefits dropped 9,000 to a seasonally-adjusted 315,000 last week, marking the lowest reading since late November.

The drop in new claims for unemployment benefits and the rise in retail sales, which for about 30 percent of consumer spending, indicated that the U.S. economy could be gaining traction after frigid temperatures disrupted economic activity at the end of 2013 and the start of this year.

"The data is consistent with a rebound taking place," said Jake Lowery, fixed income portfolio manager with ING U.S. Investment Management in Atlanta.

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