October 18, 2011 / 9:22 PM / 8 years ago

TREASURIES-Prices drop on report of euro zone fund boost

* Guardian report sends Treasuries down, stocks higher

* Germany, France agree on bailout fund boost-report

* US 30-year bonds erase gains, fall nearly 1 point

By Walter Brandimarte

NEW YORK, Oct 18 (Reuters) - U.S. Treasury debt prices ended lower on Tuesday, reversing earlier gains, as renewed optimism about a solution to the euro zone debt crisis triggered a rally on Wall Street.

Investors sold off safe-haven assets and rushed into stocks, driving the S&P 500 over 2 percent higher, after Britain’s Guardian newspaper said France and Germany had reached an agreement to boost the euro zone rescue fund to 2 trillion euros.

The report, published on the paper’s website, said the liquidity injection into the fund would be part of a “comprehensive plan” to solve the region’s crisis to be endorsed at a meeting of European leaders this weekend.

Many investors, however, were skeptical about the chances of a quick solution to the euro zone debt problems after German Chancellor Angela Merkel said earlier on Tuesday more steps would be necessary to overcome the crisis.

“We came in today with a strong bid,” said David Ader, head of government bond strategy at CRT Capital Group. “Then this last report hit from the Guardian saying that they came to an agreement, completely running against the grain of what we were hearing earlier from Merkel.”

Trading volumes were just around average, he said, in a sign that investors were not selling on conviction.

“We don’t know if this is accurate, we don’t know where this is coming from. We’re left in this difficult position,” Ader said.

Benchmark 10-year Treasury note prices fell 8/32 in price to yield 2.18 percent. Yields had fallen as low as 2.08 percent earlier, their lowest since Oct. 7, as a warning from Moody’s on France’s rating outlook increased investors’ aversion to risk.

U.S. 30-year bonds were down 31/32, yielding 3.17 percent compared with 3.16 percent on Monday.

Long bonds had jumped more than 2 points in price on Monday after German Finance Minister Wolfgang Schaeuble cautioned that this weekend’s summit of EU leaders would not yield a “definitive solution” to the region’s debt crisis.

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