TREASURIES-Prices climb as reports temper U.S. payrolls outlook

* Market awaits U.S. payrolls report on Friday

* ADP private sector employment weaker than forecast

* ISM non-manufacturing employment component slips

NEW YORK, April 3 (Reuters) - U.S. Treasury debt prices advanced on Wednesday after a report on job growth and a survey of U.S. non-manufacturing activity suggested government employment data due Friday might come in weaker than previously thought. That perception nudged 10-year yields down to recent lows, which had been the lowest yields in nearly three weeks. The National Employment Report from payroll processor ADP showed U.S. private sector employment rose by 158,000 jobs in March, less than expected. The Institute for Supply Management reported that U.S. service sector growth slowed in March to the lowest level in seven months. The reports boosted prices of safe-haven U.S. debt, while stock prices fell. The market focused on a drop in the ISM non-manufacturing index's employment component to its lowest level since November, as bond investors looked toward Friday, when the U.S. government is due to release more comprehensive monthly labor market data. "The market had gotten used to relatively strong U.S. data in contrast with Europe, but in advance of this Friday's payroll number, that strength now looks somewhat diminished," said Jake Lowery, Treasury trader at ING in Atlanta, Georgia. The below-forecast ADP data and non-manufacturing employment component lowered expectations for the payroll growth investors expect to see in this Friday's employment report, he said. "We are revising our forecast for March nonfarm payrolls down 40,000 to 160,000," said Joseph LaVorgna, managing director and chief U.S. economist at Deutsche Bank Securities. Such views were "bullish for bonds which are testing the low end of their recent yield range," Lowery said. The benchmark 10-year Treasury note, down 3/32 of a point before these reports became available, was up 10/32 afterwards, their yields easing to 1.83 percent. "We see a 1.73 percent to 2.07 percent range for 10-year yields; slightly longer term, it looks like 2.15 percent to 1.73 percent," said William O'Donnell, head of U.S. Treasury strategy at RBS Securities in Stamford, Connecticut. "Near-term resistance is around 1.83 percent." One issue that could impact bond prices is whether March economic data confirm the improved January and February data. "We're past the strongest seasonal period for data based on the last few years and heading into the strongest seasonal period for Treasury performance based on the last couple of decades so investors will be jittery about the chance that pattern could repeat itself," Lowery said. Such a view would also influence expectations about Federal Reserve monetary policy. "Based on this recent, weak data, I would not be surprised if quantitative easing continues through (Fed Chairman Ben) Bernanke's last term ending in 2014," said Tom DiGaloma, managing director at Navigate Advisors LLC in Stamford Connecticut. As part of its unconventional monetary easing, the Fed bought $3.73 billion of Treasuries maturing between February 2019 and March 2020 on Wednesday.

BONDS VUNLERABLE IF MARCH PAYROLLS ARE STRONG If U.S. job growth in March now turns out to have matched or exceeded 200,000, bond prices would likely fall and yields rise. But the magnitude of a retreat might be relatively modest since bond investors had leaned toward being short, based on how strong the U.S. economic data had been, Lowery said. "The magnitude of a setback could be less than what it would have been had investors been positioned quite long. "Expectations for the U.S. payrolls data had been high leading into this week so people were short so the (weaker) data we have seen this week might have left bonds in the early stages of leaning in the other direction," Lowery said.