* U.S. jobless claims fall to lowest in over 4 years
* U.S. sells $13 billion in 30-year bonds
* Spain rating cut underscores euro zone fears
* Fed buys $1.25 billion TIPS for Operation Twist
(Updates market action, adds quote)
By Richard Leong and Luciana Lopez
NEW YORK, Oct 11 (Reuters) - U.S. Treasuries prices rose on Thursday in choppy trading as worries about the health of the euro zone after a downgrade of Spain's debt and uncertainty around November's U.S. election outweighed a lackluster sale of 30-year debt.
The U.S. Treasury sold $13 billion of 30-year bonds at a high yield of 2.904 percent. Analysts said demand was soft, with primary dealers accounting for the highest share of purchases since January.
That was a contrast to auctions earlier in the week of three- and 10-year debt, which both saw stronger demand.
"The auction looked weak, but I prefer to look at the broader picture," said Suvrat Prakash, an interest rate strategist with BNP Paribas in New York.
"When you look at all three auctions, it tells you quite strongly that investor demand is there and there's good support for the market to be at these historically low rates."
Investors fretted about a downgrade to Spain's sovereign credit rating by Standard & Poor's late on Wednesday to barely above junk. Markets are also waiting for the results of a Moody's review of Spain's rating, which could see it being cut to junk. Those results are expected this month.
Spain's rating woes piled on the pressure for the country to seek help from its European partners, which would make it the largest economy yet in the monetary union to ask for a full-blown bailout.
But Treasuries nonetheless seesawed for part of the session, as data suggested the U.S. labor market might be strengthening.
First-time filings for unemployment benefits unexpectedly fell to their lowest since February 2008, but the government said one-time factors likely caused the steep 30,000 drop in weekly claims.
"This suggests some improvement in the labor market," which fueled some selling in Treasuries earlier in the session, said David Keeble, global head of interest rate strategy at Credit Agricole Corporate & Investment Bank in New York. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphics: Euro debt crisis: U.S. jobless claims: U.S. trade deficits: U.S. import prices:
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Meanwhile, the Federal Reserve purchased $1.25 billion in Treasury Inflation Protected Securities 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 bolster the economy.
The U.S. Treasury said on Thursday it will reopen a 30-year TIPS issue by $7 billion on Oct. 11.
On the open market, regular 10-year Treasury notes
were 1/32 higher in price, yielding 1.679 percent, from 1.680 percent late on Wednesday.
Thirty-year bonds
rose 14/32 in price after flirting with a near 1 point drop earlier. The 30-year yield was last at 2.863 percent, from 2.885 percent late on Wednesday.
Treasuries might be safe vehicles to park cash until there is progress with the debt problems in Europe and U.S. lawmakers deal with expiration of major tax breaks and automatic spending cuts at year-end - referred to as "the fiscal cliff," analysts and investors said.
"We are bouncing around in a range here. This is a good entry here," said Matt Duch, portfolio manager at Calvert Investment Management in Bethesda, Maryland, which oversees about $12 billion in assets.
(Editing by James Dalgleish)
((luciana.f.lopez@thomsonreuters.com)(+1 646 223 6319)(Reuters Messaging: luciana.f.lopez.thomsonreuters.com@reuters.net))
((-------MARKET SNAPSHOT AT 2:03 p.m. EDT (1803 GMT)------- March T-Bond (+) March 10-Year note (+) Change vs Current Nyk yield Three-month bills 0.0975 (+0.00) 0.099 Six-month bills 0.1475 (+0.00) 0.150 Two-year note 99-31/32 (-) 0.270 Five-year note 99-26/32 (-02/32) 0.663 10-year note 99-17/32 (+01/32) 1.679 30-year bond 97-24/32 (+14/32) 2.863 DOLLAR SWAP SPREADS LAST Change U.S. 2-year dollar swap spread 11.75 (-0.25) U.S. 3-year dollar swap spread 11.25 (+0.25) U.S. 5-year dollar swap spread 12.75 (-0.25) U.S. 10-year dollar swap spread 4.50 (-0.75)
U.S. 30-year dollar swap spread -23.00 (-0.75)))
Keywords: MARKETS USA BONDS/