TREASURIES-Prices little changed as U.S. jobs recovery offsets overseas news
* Benchmark U.S. yields hover near 11-month highs
* Italian ratings downgrade props up safe-haven bids
* Treasury to auction $66 billion of U.S. debt this week
NEW YORK, March 11 (Reuters) - U.S. Treasury debt prices were little changed on Monday as bearish pressure from better-than-expected U.S. jobs data last week was offset by safe-haven bidding due to disappointing economic data from China and a ratings downgrade of Italy. Benchmark yields remained near 11-month highs following a sharp selloff on Friday, when government data showed a larger-than-expected rise in U.S. payrolls in February, while the unemployment rate fell to a four-year low. "You are seeing a little bit of a hangover from the payrolls data," said Mary Ann Hurley, vice president of fixed-income trading at D.A. Davidson & Co in Seattle. Treasuries prices were supported by the international news and began the session on Monday trading slightly higher in price. Credit ratings agency Fitch on Friday cut Italy's sovereign rating by one notch to BBB-plus with a negative outlook, saying last month's inconclusive election result complicated efforts to get the economy out of its deep recession and curb debt.
In China, a rise in inflation and weaker-than-expected consumer spending and factory output in February pointed to an uneven recovery in the world's No. 2 economy. "Treasuries have staged a modest rebound after China's industrial production, inflation and retail sales data modestly disappointed. Bunds have outperformed Treasuries by a few basis points after Fitch played up to Moody's and S&P in their just-announced downgrade of Italy's sovereign rating," said William O'Donnell, head of U.S. Treasury strategy at RBS Securities in Stamford, Connecticut. As of early Monday afternoon, benchmark 10-year Treasury notes were trading 1/32 lower in price with their yield little changed from late Friday at 2.05 percent. Yields on Friday touched 2.09 percent, marking their highest since April 2012. Despite the improvement in the U.S. labor market, primary dealers expect the Federal Reserve to continue its program of debt purchases through 2013 in an effort to prop up the economy, according to a Reuters poll conducted on Friday after the release of the jobs data. All of 17 primary dealers - the large financial institutions that deal directly with the Fed - said they expect the central bank to continue buying debt until at least late this year, and 11 of the 17 expect the buying to continue into 2014. As part of the latest stimulus program, the Fed on Monday bought $1.464 billion of Treasuries maturing February 2036 through February 2043. Although trade volume was below average, investors in U.S. Treasuries are looking to set up for $66 billion of U.S. debt supply this week, with the Treasury auctioning $32 billion of three-year notes on Tuesday, $21 billion of reopened 10-year notes on Wednesday and $13 billion of reopened 30-year bonds on Thursday.