TREASURIES-Prices dip as China hopes lift Dow to record high
* 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) - U.S. Treasury debt prices fell on Tuesday as Wall Street stock indexes pushed to record highs, with investors turning away from safe-haven assets as higher government spending in China and solid U.S. data whetted risk appetite. China's outgoing Premier Wen Jiabao on Tuesday announced record government spending in 2013 that will sustain growth, cheering investors who see the emerging market powerhouse helping to offset slow recoveries elsewhere. That news helped boost the Dow Jones industrials to an all-time high, beating 2007 benchmarks. Treasuries, in contrast, slipped but remained within recent ranges as investors saw little to change their views on easy monetary policy in the United States and elsewhere. "Stocks are close to fair value, but very cheap relative to the bond market and to cash, which is very expensive," said David Kelly, managing director and chief market strategist at JP Morgan Asset Management in New York. "The central banks are making it impossible for fixed-income investors to make a good return. That means investors have to be overweight equities and they are moving toward that," he added. 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 earlier garnered better-than-expected results, lifting hopes the bloc's economies could be gaining momentum.
But analysts said that Treasuries would need a bigger jolt to move to new levels. "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. U.S. benchmark 10-year Treasury notes fell 7/32 in price to yield 1.903 percent, up from 1.8789 percent on Monday. Prices for 30-year bonds dropped 14/32 to yield 3.110 percent, up from 3.088 percent late Monday. Investors may also be hesitant to take large positions ahead of a European Central Bank meeting on Thursday and U.S. February payrolls data 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, a senior economist at ING. Friday's nonfarm payrolls data is seen pointing to ongoing healing in the U.S. 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 U.S. central bank's goal of 6.5 percent, analysts say Fed Chairman Ben Bernanke is unlikely to lead the bank to tighten 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.