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Stocks Drop 1% as Fed Tapering Fears, Weak China Data Rattle Markets

TREASURIES-U.S. prices ease on stronger February retail sales

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Published: Wednesday, 13 Mar 2013 | 11:48 AM ET
By: Chris Reese

* February U.S. retail sales post largest rise since Sept.

* Fed buys $1.464 billion in longer-dated Treasuries

* U.S. Treasury to auction $21 bln of reopened 10-year notes

NEW YORK, March 13 (Reuters) - U.S. Treasury debt prices fell on Wednesday after stronger-than-expected retail sales in February added to evidence of a resilient economic recovery despite higher taxes and the specter of government spending cuts. The rise in February retail sales, the largest since September, followed Friday's report of robust jobs growth. Analysts had been questioning whether the end of a temporary payroll tax reduction earlier this year and worries over the impact of automatic government spending cuts beginning March 1 might crimp consumption. The Commerce Department said on Wednesday that retail sales increased 1.1 percent last month, after a revised 0.2 percent gain in January. Economists polled by Reuters had expected retail sales to rise 0.5 percent. "The positive tone in this report is quite encouraging as it comes at a time when U.S. households are being buffeted by higher personal taxes and rising energy prices, and the positive momentum in spending is indicative of continued resiliency in consumer spending," said Millan Mulraine, fixed income strategist at TD Securities in New York. The positive news for the economy worked against Treasuries, a traditional safe-haven investment. Benchmark 10-year Treasury notes traded 7/32 lower in price with their yield at 2.044 percent, up from 2.019 percent late Tuesday, while 30-year bonds traded 12/32 lower to yield 3.236 percent from 3.216 percent. Still, losses were limited with Treasuries prices underpinned by the Federal Reserve's latest economic stimulus program of buying $85 billion of mortgage-backed securities and U.S. government debt per month. Some analysts say recent comments from Fed Chairman Ben Bernanke point to the U.S. central bank continuing its debt purchases through at least the end of 2013. "With Bernanke reconfirming the Fed's commitment to (quantitative easing), we see the belly of the curve well supported and it is trading cheap," Nomura Securities said in a note to clients. As part of its latest stimulus program, the Fed on Wednesday bought $1.464 billion of Treasuries maturing February 2036 through February 2043. The focus on Wednesday will turn to the Treasury's sale of $21 billion of reopened 10-year notes, which could benefit from the backup in yields. The Treasury's $32 billion auction of three-year notes on Tuesday was well received and easily absorbed. In the when-issued market, considered a proxy for where the notes will price at auction, 10-year notes were yielding near 2.046 percent.

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*Fed buys $1.464 billion in longer-dated Treasuries. NEW YORK, March 13- U.S.

   
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