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TREASURIES-Bonds ease on recovery hopes, ahead of auction

2009-11-25 16:27:04 GMT (Reuters)
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* Weekly jobless claims fall below 500,000

* October consumer spending rises more than expected

* Durable goods orders unexpectedly fall in October

* New home sales jump more than expected (Adds strategist quote, updates prices)

By Chris Reese

NEW YORK, Nov 25 (Reuters) - U.S. Treasury debt prices eased on Wednesday after a bigger-than-expected dip in weekly jobless claims and a forecast-beating rise in October consumer spending bolstered hopes of a nascent economic recovery.

Bonds were also undermined as gains in new home sales in October pointed to some stabilization in the housing market, and by efforts to cheapen prices ahead of the auction of $32 billion of seven-year notes on Wednesday afternoon.

Treasuries losses were tempered, however, by data showing an unexpected fall in new orders for long-lasting U.S. manufactured goods in October, which undermined some expectations the factory sector would help lead any economic recovery.

"The economic releases this morning were enough to generate some pressure, particularly further out the curve as we also position for supply," said John Canavan, analyst with Stone & McCarthy Research Associates in Princeton, New Jersey.

Benchmark 10-year Treasury notes were trading 5/32 lower in price to yield 3.33 percent, up from 3.31 percent late on Tuesday, while the 30-year Treasury bond was 18/32 lower to yield 4.29 percent from 4.25 percent.

The number of U.S. workers filing new applications for jobless insurance tumbled last week by a surprisingly large amount to the lowest level in more than a year, according to government data.

Initial claims for state unemployment benefits slid to a seasonally adjusted 466,000 in the week ended Nov. 21, from a revised 501,000 in the prior week, the Labor Department said.

Analysts cautioned that much of the fall may have been due to seasonal adjustments.

Jobless "claims were under 500,000 and so this is bond bearish," said David Ader, head of government bond strategy at CRT Capital Group in Stamford, Connecticut. He added, however, "There is a real mix of information here that leaves us feeling rather neutral about the data to seeing it as a tad soft."

Hopes of an economic recovery were propped up by data showing U.S. consumer spending rose more than expected in October as incomes increased, while October new homes sales also rose more than expected.

The Reuters/University of Michigan Surveys of Consumers said consumer sentiment improved slightly in late November from earlier this month, but was weaker than October with anxiety over personal finances.

Optimism was tempered by government data showing durable goods orders dropped by 0.6 percent in October after rising by an upwardly revised 2.0 percent in September. Analysts had been looking for durable goods orders to rise by 0.5 percent.

Investors were now looking ahead to the Treasury's auction of seven-year Treasury notes in what will be the third and final leg of $118 billion of notes sales this week.

The auctions of two-year and five-year notes earlier this week were both met with solid demand.

Treasury debt prices may have found some support from investors seeking safer-haven holdings in ongoing worries about other sovereign debt, after the government of Dubai said it will ask creditors of its two flagship firms for a debt standstill while it restructures the Dubai World group.

Treasury trade volumes were said to be very thin ahead of the U.S. Thanksgiving Day holiday on Thursday. (Editing by Leslie Adler) ((chris.reese@thomsonreuters.com; +1 646 223 6073; Reuters Messaging: chris.reese.reuters.com@reuters.net))

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