(Adds details, quote, updates prices)
* Bonds gain on safety bid on Iraq, Ukraine tensions
* Prices pare gains on solid U.S. economic data
* Fed meeting on Wednesday in focus
* Fed buys $2.70 bln notes due 2018, 2019
By Karen Brettell
NEW YORK, June 16 U.S. Treasuries prices rose on
Monday as fighting in Iraq and Ukraine increased demand for
safe-haven bonds, though solid U.S. economic data limited gains.
Worries about Iraq were intensifying after Sunni insurgents
seized a mainly ethnic Turkmen city in northwestern Iraq on
Sunday after heavy fighting, solidifying their grip on the north
after a lightning offensive that threatens to dismember Iraq.
Russian natural gas exporter Gazprom also reduced
supplies to Ukraine on Monday after Kiev failed to meet a
deadline to pay off its gas debts in a dispute that could
disrupt supplies to the rest of Europe.
"There was a reasonable flight-to-quality bid overnight with
the developments in Iraq and Gazprom, so global equities were
under a fair amount of pressure and that gave a bid to longer-
dated Treasuries," said Ian Lyngen, senior government bond
trader at CRT Capital in Stamford, Connecticut.
"We've given some of that up in the wake of the industrial
production numbers," Lyngen added.
U.S. manufacturing output rose solidly in May as production
increased across the board, bolstering expectations that
economic growth will rebound strongly this quarter.
Benchmark 10-year notes were last up 2/32 in
price to yield 2.60 percent, after earlier falling as low as
2.58 percent. Thirty-year bonds gained 10/32 in
price to yield 3.40 percent, after earlier falling to 3.35
A gauge of manufacturing in New York state also rose in
June, advancing as a read on new orders climbed to its highest
level in nearly four years, the New York Federal Reserve said in
a report on Monday.
Confidence among U.S. homebuilders rose for the first time
this year as builders felt better about the prospects of selling
new homes, an industry gauge showed on Monday.
Investors this week are focused on the Federal Reserve's
monetary policy statement on Wednesday, when the U.S. central
bank is expected to announce it will continue paring its bond
purchase program. The Fed is also expected to cut its growth
"One of the key things that people will focus on is what
they will do with their summary of economic projections," said
Gennadiy Goldberg, an interest rate strategist at TD Securities
in New York.
"They will downgrade their growth expectations, but they
will shift their unemployment rate projections lower because the
unemployment rate has gone down faster than expected, so that
should be fairly positive," Goldberg said.
The Fed bought $2.70 billion in notes due in 2018 and 2019
on Monday as part of its ongoing purchases.
(Editing by W Simon; and Peter Galloway)