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TREASURIES-Bonds slip on stronger-than-forecast data

Wednesday, 3 Oct 2012 | 12:42 AM ET

* ADP payrolls report slightly stronger than forecast

* ISM report on service sector higher than expected

* Market awaits U.S. payrolls data due Friday

(Updates comment, prices)

By Ellen Freilich

NEW YORK, Oct 3 (Reuters) - U.S. Treasuries prices slipped on Wednesday after stronger-than-forecast reports on the labor market and the U.S. service sector cooled the bid for safe-haven U.S. debt before the key U.S. payrolls report due on Friday.

Trade was in a narrow range. Prices of short- and medium-term Treasuries were unchanged.

Minor losses occurred at the long end of the yield curve, partly due to hedging of corporate deals.

"There's rate-locking and traders are adding to steepening exposure," said Tom di Galoma, managing director at Navigate Advisors LLC in Stamford, Connecticut. "They're selling the long end to buy the front end."

The day's economic reports were mildly bearish for Treasuries.

Payrolls processor ADP's report that U.S. private-sector employers added 162,000 jobs in September, topping economists' forecasts, weighed on bond prices. The impact was not dramatic, though, because the report has not been a good immediate predictor of job growth as reported by the U.S. Labor Department each month.

"The market reaction was muted," said Eric Stein, vice president and portfolio manager at Eaton Vance Investment Managers in Boston. "ADP is a pretty good indicator for helping to analyze the labor market, but it has not done a very good job of predicting the subsequent (U.S. Labor Department) payrolls print so many short-term traders give it less weight."

The benchmark 10-year note

was down 3/32, leaving its yield at 1.64 percent, in the middle of its recent range.

Jim O'Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York, said the data suggested about a 155,000 rise in total payroll job growth as figured by the U.S. Labor Department. That tops the current consensus forecast, drawn from a Reuters poll, of 113,000 new jobs for September.

The Institute for Supply Management's September report on the non-manufacturing sector, which showed growth in new orders, was also upbeat for the economy and gave investors less reason to buy safe-haven U.S. debt.

Treasuries could tend to play defensive before Friday's payrolls number, some analysts said.

"Strong car sales, an improving housing sector and further signs hiring is gradually picking up work against bond bulls," said Josh Stiles, managing director at IDEAglobal in New York. "That all tends to favor (President Barack) Obama's re-election just as the debates are about to begin and leaves dealing with the 'fiscal cliff' as the key policy action later in the year."

Though stronger-than-forecast U.S. payrolls figures could inspire some selling, U.S. rates are likely to remain low for the foreseeable future, said Tanweer Akram, senior economist at ING Investment Management in Atlanta.

"If non-farm payroll job growth were to be markedly above 110,000 or 115,000, that might give bonds a reason to sell off, but there's still a lot of uncertainty around the U.S. economic outlook, and that's why rates are likely to remain low," he said.

(Editing by Jan Paschal)

((ellen.freilich@thomsonreuters.com)(+1 646 223 6309)(Reuters Messaging: ellen.freilich.thomsonreuters.com@thomsonreuters.net))

((-------------- MARKET SNAPSHOT AT EDT (0930 EDT/1330 GMT) ---------------------

Change vs Current Nyk yield Three-month bills 0.090 ( unch ) 0.091 6-month bills 0.135 ( unch ) 0.137 Two-year note 100-01/32 ( unch ) 0.238 Five-year note 100-01/32 ( unch ) 0.615 10-year note 99-29/32 (-03/32) 1.635 30-year bond 98-08/32 (-10/32) 2.836 ))

Keywords: MARKETS USA BONDS/