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TREASURIES-Bonds rise before three-year note sale

Tuesday, 9 Oct 2012 | 11:32 AM ET

* Growth, Greece worries stoke safety bids for bonds

* U.S. to sell $32 bln in 3-year note supply

* Fed buys $1.89 billion in long-dated debt

* Long bond yield dips below 200-day moving average

(Updates market action, adds quote)

By Richard Leong

NEW YORK, Oct 9 (Reuters) - U.S. Treasuries prices rose on Tuesday in advance of a three-year debt sale as safe-haven bids for bonds emerged on anxiety about weak global growth and Greece's ability to meet the terms of a bailout.

Those concerns overshadowed a government report on Friday that showed the U.S. jobless rate fell in September to 7.8 percent, its lowest since January 2009. This and other surprisingly upbeat aspects of the September payroll data led to a sell-off in Treasuries and pushed benchmark yields to their highest levels in about two weeks.

Worries about anemic economic and profit growth led investors o n T uesday to pare their holdings in stocks and other risky assets and to raise their positions in less-risky Treasuries.

The U.S. bond market was closed on Monday due to the Columbus Day holiday.

The International Monetary Fund, one of Greece's main lenders, said in a report o n T uesday that Athens would miss the five-year debt reduction target that is one of the conditions for the country's 130 billion euro bailout.

The group also warned that the United States faces meager growth of about 2.0 percent this year and in 2013 and predicted a 0.4 percent contraction in the euro zone's economy this year. It also downgraded its outlook on China, the world's second- largest economy.

The IMF outlook "was adding to the downbeat sentiment. It was a confirmation of slow growth globally," said Gennadiy Goldberg, an interest rate strategist with TD Securities in New York. "That's why we are setting back into this trading range."

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Graphic: Euro debt crisis

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German Chancellor Angela Merkel said during a visit to Greece on Tuesday that Athens is making progress with fiscal reforms. Her visit coincided with protests against steep spending cuts in various government programs.

Safe-haven appetite for Treasuries was mitigated by some selling by bond dealers in anticipation of this week's $66 billion in coupon supply.

The Treasury Department will sell $32 billion in three-year notes at 1 p.m. (1700 GMT). It will sell $21 billion in 10-year debt on Wednesday and $13 billion in 30-year bonds on Thursday.

Traders expected the upcoming three-year note

to sell at a yield of 0.349 percent, compared with 0.337 percent at last month's auction.

Also on the supply front, the Federal Reserve resumed its Operation Twist, which involves the selling of shorter-dated Treasuries and purchases of longer-dated issues in a bid to hold down long-term borrowing costs and to help the economy. It bought $1.889 billion in Treasuries due in Feb 2036 to Aug 2042.

Fed Vice Chairwoman Janet Yellen was scheduled to speak at 8:30 p.m. (0030 GMT) about sovereign risk and financial markets at an event sponsored by the IMF and the Japanese ministry of finance.

"The market is struggling with a lot of moving parts," said Robert Tipp, chief investment strategist with Prudential Fixed Income in Newark, New Jersey. "At the end of the day, we'll be in a pretty tight trading range."

On the open market, benchmark 10-year notes

were

up 11/32 in price to yield 1.703 percent, down 4 basis points from late on Fr iday when it touched 1.748 percent, the highest since Sept 24.

Thirty-year bonds

rose 24/32 in price to yield 2.930 percent, down 4 basis points from Friday's close. The 30-year yield slipped below its 200-day moving average of 2.939 percent, according to Reuters data.

Wall Street stocks fell, with the Standard & Poor's 500 index

down 0.7 percent. Traders will focus on the earnings of Dow component Alcoa

after the market close. Analysts expect the aluminum producer likely broke even in the third quarter.

(Editing by Dan Grebler)

((richard.leong@thomsonreuters.com)(+1 646 303 6313)(Reuters Messaging: richard.leong.thomsonreuters.com@thomsonreuters.net))

((-------MARKET SNAPSHOT AT 11:15 a.m. EDT (1515 GMT)------- Dec T-Bond 148-07/32 (-01/32) Dec 10-Year note 133-05/32 (-04/32) Change vs Current Nyk yield Three-month bills 0.1025 (+0.00) 0.104 Six-month bills 0.14 (+0.00) 0.142 Two-year note 99-31/32 (+) 0.262 Five-year note 99-27/32 (+03/32) 0.655 10-year note 99-10/32 (+09/32) 1.703 30-year bond 96-14/32 (+25/32) 2.931 DOLLAR SWAP SPREADS LAST Change U.S. 2-year dollar swap spread 12.25 (-1.50) U.S. 3-year dollar swap spread 11.75 (-1.50) U.S. 5-year dollar swap spread 13.50 (-0.50) U.S. 10-year dollar swap spread 5.75 (-0.50)

U.S. 30-year dollar swap spread -22.00 (-0.75)))

Keywords: MARKETS USA BONDS/