TREASURIES-Prices fall as traders prepare for 10-year sale
* IMF warns euro zone crisis threatens global growth
* U.S. to sell $21 billion in 10-year notes
* Fed sells $7.8 billion in short-dated debt
* Fed to release Beige Book on economic conditions
(Updates market action, adds comment)
By Richard Leong
NEW YORK, Oct 10 (Reuters) - U.S. Treasuries prices fell on Wednesday as traders reduced their bond holdings to make room for $21 billon in 10-year note supply, part of this week's $66 billion in coupon-bearing offerings.
The selling was limited, however, by worry about the global economic slowdown caused mainly by the euro zone debt crisis. In a report on Wednesday, the International Monetary Fund was sharply critical of European policymakers for their failure to restore confidence.
The market decline is "just positioning ahead of the auction," Sharon Stark, chief fixed income strategist at Sterne Agee & Leach in Birmingham, Alabama. "The fear factor remains. The IMF underscored the bad news from Europe and its impact on the global economy."
The IMF, which will hold its semi-annual meeting in Tokyo later this week, downgraded its outlook on global economic growth and said the euro area is likely to contract this year. It also called the euro zone debt crisis the biggest risk to the world's financial health.
This dour view, together with warnings from Alcoa, Chevron and several other major U.S. firms on their future results, should support demand for the longer-dated Treasuries supply this week, Stark said.
The 10-year note auction at 1 p.m. (1700 GMT) follows a strong $32 billion auction of three-year debt on Tuesday.
Traders expect the reopening of the 10-year note issue originally sold in August to sell at a yield of 1.743 percent
early Thursday, more than 1 basis point below the yield at last month's auction.
This "when issued" 10-year yield level should entice solid bids among some fund managers, analysts said. "There seems to be a yield bogy when the yield gets above 1.70 percent," said George Goncalves, head of U.S. interest rate strategy at Nomura Securities International in New York.
The previous two 10-year auctions elicited mediocre demand from big investors and overseas central banks. This put pressure on primary dealers, Wall Street firms that do business directly with the Fed, to absorb the remaining supply and resell it in the open market later, analysts said.
The U.S. Treasury Department will complete this week's $66 billion worth of coupon debt offerings with a $13 billion sale of 30-year bonds on Thursday.
Graphic: Euro debt crisis:
The Federal Reserve also sold $7.8 billion in Treasuries due April 2014 to February 2015 under its Operation Twist. This program involves selling shorter-dated Treasuries and purchasing longer-dated issues in a bid to hold down long-term borrowing costs to help the economy.
The Fed will follow the sale with the release of its Beige Book of regional economic conditions at 2 p.m. (1800 GMT). The Beige Books offers anecdotal information on U.S. business activity collected by the Fed's 12 regional banks. It will offer insight on whether the U.S. economy slowed in late September and early October.
The Beige Book findings will likely become "the basis of discussion" among Fed policymakers when they meet on Oct. 23-24, Sterne's Stark said.
Three top Fed officials -- Minneapolis Fed chief Narayana Kocherlakota, Fed Governor Daniel Tarullo and Dallas Fed President Richard Fisher -- will speak at separate events later Wednesday.
Fed Vice Chairwoman Janet Yellen said late Tuesday low short-term interest rates are essential to support the U.S. economy. She spoke at an event sponsored by the IMF and the Japanese Ministry of Finance.
On the open market, benchmark 10-year notes
7/32 lower in price, yielding 1.739 percent, up over 2 basis points from late on Tuesday.
fell 14/32 in price to yield 2.948 percent, up 2.3 basis points from Tuesday. The 30-year yield edged above its 200-day moving average of 2.939 percent, according to Reuters data.
(Reporting by Richard Leong; Editing by Kenneth Barry)
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((-------MARKET SNAPSHOT AT 11:21 a.m. EDT (1521 GMT)------- Dec T-Bond 147-24/32 (-07/32) Dec 10-Year note 132-29/32 (-05/32) Change vs Current Nyk yield Three-month bills 0.1 (+0.00) 0.102 Six-month bills 0.145 (+0.00) 0.146 Two-year note 99-31/32 (-) 0.266 Five-year note 99-23/32 (-03/32) 0.681 10-year note 98-31/32 (-08/32) 1.739 30-year bond 96-03/32 (-15/32) 2.948 DOLLAR SWAP SPREADS LAST Change U.S. 2-year dollar swap spread 12.25 (unch) U.S. 3-year dollar swap spread 11.50 (unch) U.S. 5-year dollar swap spread 13.00 (-0.25) U.S. 10-year dollar swap spread 5.00 (-0.50)
U.S. 30-year dollar swap spread -22.25 (unch)))
Keywords: MARKETS USA BONDS/