TREASURIES-Bonds climb as spending cuts point to weaker growth
* February ISM manufacturing index forecast at 52.5
* Euro zone PMIs show growth in only two of 17 countries
* Unemployment hits new high of 11.9 percent in euro zone
* China PMI at five-month low
* Fed will buy $45 bln in U.S. debt in March for QE
NEW YORK, March 1 (Reuters) - U.S. Treasuries prices rose on Friday as impending U.S. budget cuts and concern about economic weakness in Europe inspired a bid for safe-haven U.S. debt. Economists say $85 billion in automatic "sequestration" cuts to federal spending, on top of fiscal restraint already in place due to the expiry of the U.S. payroll tax cut, will trim U.S. economic growth this year. The International Monetary Fund said Thursday it was likely to shave its 2013 forecast of 2 percent growth for the United States by at least half a percentage point if the cuts are fully implemented. "Concern over the sequester spending cuts is giving a bid to Treasuries," said Thomas Simons, vice president and money market economist at Jefferies & Co in New York. Benchmark 10-year Treasury notes rose 8/32, allowing their yields to ease to 1.85 percent from 1.88 percent late on Thursday. U.S. personal income and spending data was also bond friendly, Simons said. The report's inflation gauge was particularly bullish for bonds with the core personal consumption expenditure (PCE) index - a measure followed closely by Federal Reserve policymakers - up just 0.1 percent in January and a narrow 1.3 percent year over year. Traders will focus on the Institute for Supply Management (ISM) report on manufacturing due at 10:00 a.m. (1500 GMT). That index is expected to read 52.5 for February, showing expansion, after a reading of 50.5 in January.
EURO ZONE WEAKNESS Italy's inconclusive election result provided another motive for money to flow into traditional safe-haven assets. Investors worry a lengthy political deadlock would hurt the country's efforts to curb its 2 trillion in euro debt, undermining confidence in other parts of the euro zone. But there were other reasons for concern about the euro zone. "Bonds rallied overnight on weak euro zone unemployment data that came in at an all time high," said Tom DiGaloma, managing director at Navigate Advisors in Stamford, Connecticut. Unemployment in the currency union hit a new high in January of 11.9 percent, official data showed. Euro zone reports showed weakness for France offsetting a return to growth in Germany. Germany, Europe's largest economy, and Ireland were the only two countries in the 17-nation bloc to see growth. PMIs from Spain and Italy showed their factory sectors deteriorated again. "The weaker UK purchasing managers report also points to more quantitative easing and austerity to come," DiGaloma said. The risk that Britain is entering its third recession in four years grew on Friday as figures showed manufacturing shrank unexpectedly last month, suggesting the central bank may need to do yet more to revive the economy. In China, factory growth slowed as sluggish domestic demand added pressure to already depressed foreign sales, two separate purchasing manager indexes (PMI) showed. U.S. Treasuries have also been supported by comments from Federal Reserve Chairman Ben Bernanke this week that strongly defended the Fed's economy-stimulating bond purchase program. The Fed said on Thursday that it will buy $45 billion in Treasuries in March as part of its ongoing purchases, including a purchase Friday of between $750 million and $1 billion in debt with maturities ranging from Aug. 15, 2023, to Feb. 15, 2031.