TREASURIES-U.S. job growth, stock gains hurt demand for U.S. debt
* 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 slipped on Monday as U.S. employment growth and stock market gains curbed demand for U.S. safe-haven debt. Disappointing economic data from China and a credit ratings downgrade of Italy limited selling, however. The highest yields in the better part of a year also kept some buyers interested Treasuries, analysts said. 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. "Treasuries settled in early in the day after retreating Friday in reaction to the February employment report, but stronger equity markets and positioning before supply applied some added downward pressure on prices and upward pressure on yields this afternoon, said John Canavan, market analyst at Stone & McCarthy Research Associates in Princeton, New Jersey. Major U.S. stock indexes closed higher on Monday, with the broad S&P 500 stock index up for the seventh day in a row. Although trade volume was below average, dealers of U.S. Treasuries are setting 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. And analysts said the more-robust-than-anticipated payrolls report released on Friday was still on the market's mind. "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. The selling in Treasuries was hardly aggressive, however. A persistent underlying bid for the safe-haven instruments remained, partly due to qualms about economic data from China and the cut in Italy's credit rating. 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. Highlighting challenges in the euro zone, 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 late trade, benchmark 10-year Treasury notes were down 5/32 in price, their yield at 2.06 percent, up from 2.05 percent late on Friday. The yield went as high as 2.09 percent on Friday, the 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.