* U.S. manufacturing output falls, adds to doubts about economy
* Some analysts unconvinced 10-year yield could get back to 3 pct
* Fed buys $1.25 bln in U.S. bonds
By Gertrude Chavez-Dreyfuss
NEW YORK, Feb 14 (Reuters) - U.S. Treasury debt yields edged higher on Friday after steep losses the previous session, but their uptrend could unravel as a recent run of weaker-than-expected economic data has raised doubts about the stability of the U.S. recovery.
A rally in stocks has also contributed to selling in the U.S. government bond market, with long yields rising for a second straight week after four consecutive weeks of losses.
While some analysts have attributed the weakness in U.S. economic numbers to the recent cold spell, a growing number have said it’s probably more than weather-related.
The latest economic report to disappoint was U.S. manufacturing output, which unexpectedly fell 0.8 percent in January, recording its biggest drop in more than 4-1/2 years. Cold weather disrupted production in some parts of the country, the Federal Reserve said.
A U.S. consumer sentiment report, meanwhile, was fairly tepid with the index unchanged, as Americans’ optimism about their future prospects was tempered by concern over current finances.
“We have been having this kind of drum beat of slightly weaker data and what this is doing is that it’s starting to convince some parts of the market that the recovery is not as solid as the Fed would like us to believe,” said Aaron Kohli, interest rate strategist at BNP Paribas in New York.
“That view is slowly permeating in the market. There’s less certainty that rates (on the 10-year note) can reach the recent peak of 3.0 percent.”
A survey from the Philadelphia Federal Reserve showed that economists trimmed their forecasts for first quarter U.S. economic growth to an annual rate of 2.0 percent, down from a previous estimate of 2.5 percent. The survey expects payroll expansion to stay somewhat subdued.
In late trading, benchmark 10-year Treasuries were down 3/32 in price to yield 2.74 percent, up from 2.73 percent late on Thursday. Yields rose for a second straight week.
Yields on U.S. 30-year bonds were also up at 3.69 percent from 3.68 percent the previous session.
Five-year notes slipped 3/32 in price to yield 1.52 percent, from 1.51 percent the previous session, while seven-year notes slid 3/32 with a yield of 2.16 percent.
“We are growing tired of the weather not just in terms of the commute but also as an excuse for the weakness,” CRT Capital strategists said.
“We don’t think the market will sell off markedly in the long wait to see if or when the weather factors give way to what is, for now, a story that seems one of a broader slowing.”
RBS Securities has also stuck with its lower rates theme despite their recent back-up. For all of 2014, the bank is looking for real gross domestic product growth on a fourth quarter-to-fourth quarter basis to decelerate to around 2.1 percent.
It has recommended buying dips in Treasuries, favoring intermediates and the long end, and targeting 2.47 percent in yield on U.S. 10-year notes over the next month or two.
The New York Fed, meanwhile, purchased $1.246 billion in bonds on Friday, as part of its quantitative easing program. Bids totaled $5 billion. The Fed will be in each business day next week to buy $8 billion to $9.75 billion in Treasuries.
The Treasury also sold $45 billion in 58-day cash management bills, awarded at a high rate of 0.05 percent. There were $171.4 billion in bids for a 3.81 cover, a little better than Monday’s 3.38 ratio, and in line with the 3.83 at the prior offering in October.