TREASURIES-Bonds up on continuing Fed purchases, debt limit worry
* Bonds gain on outlook for continued Fed purchases
* Low consumer price inflation keeps door open for monetary accommodation
* Weaker stocks heighten appetite for safe-haven debt
NEW YORK, Jan 16 (Reuters) - U.S. Treasury debt prices rose on Wednesday, supported by the prospect of more purchases by the Federal Reserve, by subdued inflation that keeps the door open for monetary accommodation and by concerns about a looming fight in Washington over the federal debt ceiling.
The Fed is scheduled to buy bonds on Wednesday, as it has done each day so far this week, as part of its effort to foster enough economic activity to allow the unemployment rate to fall.
Fed Chairman Ben Bernanke indicated late Monday that the Fed would continue its asset purchases. The Labor Department reported on Wednesday that U.S. consumer prices were flat in December, more evidence that inflation is low enough to let the Fed stay on its path of monetary accommodation.
"This supports the Fed's contention that inflation is mild and that inflation expectations should be stable," said Terry Sheehan, an economic analyst at Stone & McCarthy Research Associates in Princeton, New Jersey.
To boost growth and get Americans back to work after the 2007-2009 recession, the Fed has kept interest rates near zero since late 2008 and has bought some $2.5 trillion in assets.
Before Bernanke's remarks on Monday, bonds had sold off on the notion that the Fed could curtail its asset-buying program by the end of this year.
Concerns about corporate earnings also weighed on stocks, heightening investors' appetite for safe-haven U.S. debt, strategists said. Major stock market indices were lower.
While a U.S. default would damage the long-term appeal of its debt to investors and foreign governments, traders were more worried about such an event paring appetite for stocks and risky investments and taking a toll on the global economy.
The U.S. Treasury cautioned on Monday the United States was on track to exhaust its options to meet its debt obligations between mid-February and early March.
The risk that the Treasury debt maturing during this period might not be repaid on time to debtholders has driven up the interest rates on these issues higher than those of T-bills that mature in April and later, resulting in an "inversion" of T-bill rates.
U.S. President Barack Obama and Republican lawmakers are expected to enter a tough round of negotiations over spending cuts, just weeks after they hammered out a deal that averted steep tax hikes.
Fitch Ratings warned on Tuesday that the United States faces a "material risk" of losing its top AAA-rating if there is a repeat of the political wrangling over the debt ceiling seen in 2011. Standard & Poor's downgraded the United States' rating in August 2011 after the first fight between Obama and Republicans over the debt ceiling.
Most investors expect the U.S. debt ceiling to be raised to avert a default, even if it occurs at the last minute.
Benchmark 10-year notes rose 8/32 in price at 98-10/32, their yields easing to 1.82 percent from 1.84 percent late on Tuesday.
Thirty-year bonds climbed 14/32 to 94-31/32, their yields easing to 3.01 percent from 3.03 percent on Tuesday.
As part of its $45 billion monthly purchases of government securities aimed to help the economy, the Fed bought $927 million in Treasuries that mature from February 2023 to February 2031.