TREASURIES-Steady in Asia as Fed minutes confirm weakness

By Chikako Mogi

TOKYO, April 9 (Reuters) - U.S. Treasuries were steady in Asia on Wednesday after minutes from the Federal Reserve's policy meeting last month confirmed a gloomy economic outlook and firmed expectations for more interest rate cuts by the Fed.

Minutes from the Fed's March 18 policy meeting showed the central bank's staff projected U.S. real gross domestic product would contract in the first half and warned that an economic downturn could be severe and prolonged.

Such a view was echoed by Fed Chairman Ben Bernanke, who said last week the U.S economy may fall into recession in the first half of 2008, but also told a congressional committee he expected U.S. growth to recover in the second half of the year, supported by monetary and fiscal policy already in place.

Traders said the weak economy and lingering concerns about the financial sector kept intact the appeal of safe-haven government debt.

U.S. short term interest rate futures showed the implied chance of a 50 basis point rate cut at the Fed's April 29-30 policy meeting had risen to about 44 percent after the minutes were released, from about 32 percent on Monday.

A 25 basis point cut is fully priced in.

The Fed has cut its benchmark interest rate six times since September by a total of 3 percentage points from 5.25 percent.

June T-note futures TYv1 eased 1/32 to 117-14/32.

Ten-year Treasury notes inched up 2/32 in price to yield 3.558 percent US10YT=RR, down about 1 basis point from late U.S. trade on Tuesday.

The two-year note was up nearly 1/32 in price to yield 1.8673 percent US2YT=R, down about 1 basis point from late New York.

The market is eyeing U.S. banks' quarterly earnings results due later this month, including Citigroup (C.N) and Merrill Lynch MER.N, for clues on their write-offs, as well as any steps to boost their capital, traders said.

Citigroup, the largest U.S. bank, is close to selling about $12 billion of leveraged loans and bonds to a group of private equity firms, people familiar with the situation said on Tuesday.

A sale could be made final by the time Citigroup reports first-quarter results on April 18, the people said. A sale could help New York-based Citigroup dent its exposure to leveraged loans, which totaled about $43 billion at year's end.