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TREASURIES-Prices slip as China spending takes Dow to record high

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Published: Tuesday, 5 Mar 2013 | 10:40 AM ET
By: Luciana Lopez

* U.S. service sector grows at fastest pace in a year

* China budget to support consumer-led growth

* Dow Jones Industrial Average hits record high

NEW YORK, March 5 (Reuters) - Prices for U.S. Treasuries fell on Tuesday as growth hopes for China and better-than-expected U.S. data helped push stocks to record highs, with yields for U.S. government debt rangebound as investors looked to key events later in the week. Outgoing Chinese Premier Wen Jiabao on Tuesday announced record government spending in 2013 that will sustain growth, cheering investors who see the powerhouse emerging market helping offset slow growth elsewhere. That helped boost the Dow Jones Industrial Average above its all-time intraday record as investors poured money into riskier assets such as stocks instead of safe-haven government debt. "Everybody is concerned about the low interest rate environment and the Fed pushing a little bit too long and too hard," said William Larkin, a fixed income portfolio manager with Cabot Money Management in Salem, Massachusetts. Stocks climbed higher and Treasuries added to losses after data showed the vast U.S. services sector grew at its fastest pace in a year in February. In addition, euro zone retail and PMI data both garnered better-than-expected results, lifting hopes the bloc's economies could be gaining momentum. But analysts said Treasuries are likely to stay within recent ranges as investors see little to change their views of easy U.S. monetary policy and still-sluggish growth in much of the world. "We're not really making any real headway either way," said Justin Lederer, Treasury strategist at Cantor, Fitzgerald in New York. "You really need a major headline" to push Treasuries into a new range. Benchmark 10-year Treasury notes fell 4/32 in price to yield 1.893 percent, up from 1.8789 percent on Monday. Prices for 30-year bonds slipped 8/32 to yield 3.100 percent, up from 3.088 percent late Monday. Investors could also hesitate to take large positions ahead of a European Central Bank meeting on Thursday and U.S. payrolls data for February on Friday. Tuesday's euro zone retail data, as well as an upward revision to earlier PMI data, "reinforces our belief that the ECB will keep interest rates on hold on Thursday," said Martin van Vliet of ING Bank. Analysts see Friday's nonfarm payrolls data pointing to ongoing healing in the labor market, with analysts in a Reuters poll calling for gains of 160,000. The Federal Reserve has emphasized the need to see a lower unemployment rate in weighing U.S. monetary policy. Until the unemployment rate, currently at 7.9 percent, edges closer to the bank's goal of 6.5 percent, analysts say Fed Chairman Ben Bernanke is unlikely to lead the central bank into tightening its ultra-loose policy. The Fed is buying $40 billion of mortgage-backed securities and $45 billion of Treasuries per month in an effort to prop up the economy. Many analysts expect the open-ended program to continue through 2013.

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*China budget to support consumer-led growth. Treasuries fell on Tuesday as growth hopes for China and better-than-expected U.S. data helped push stocks to record highs, with yields for U.S. government debt rangebound as investors looked to key events later in the week.

   
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