TREASURIES OUTLOOK-Yields end lower on the week
* Profit-taking, position-squaring before weekend
* 10-year yield set for biggest weekly drop in 13 months
* Worries about Portugal, Chinese growth fed early bid
* Perception monetary policy will stay easy supports bonds
(Adds look at data due in coming week) NEW YORK, July 12 (Reuters) - U.S. Treasuries prices slipped on Friday as profit-taking and pre-weekend position-squaring created a pause in the bond market rebound that followed Federal Reserve Chairman Ben Bernanke's assurance that a highly accommodative monetary policy was needed for the foreseeable future. Traders who were still stuck with soured bets in the recent bond market rout also excused themselves from those positions before the weekend, analysts said. "This recent 20-basis-point drop in (in 10-year yields) over the past week came when a lot of people were too much on one side of the boat," said Jonathan Garber, macroanalyst at Briefing.com in Chicago. "There was a lot of short interest going into this week. People who came late to that trade got shaken out of their positions." An interview with Philadelphia Federal Reserve President Charles Plosser on Bloomberg television encouraged some selling. Plosser said he would like the U.S. central bank to end its $85 billion monthly bond purchase program, known as QE3, this year. "I don't want to do it all at once, but I think we should begin to taper very soon and hopefully end it by the end of this year," Plosser said in the interview. Before selling became the dominant trend, Treasuries prices rose as political and financial troubles in Portugal - and a warning about weakening Chinese growth - heightened investors' appetite for safe-haven U.S. debt. That sent benchmark yields to their lowest level in a week, about 20 basis points below a near two-year peak set on Monday. Moreover, solid demand for this week's $66 billion in coupon-bearing supply helped instill confidence in the bond market in advance of Bernanke's congressional testimony on the economy next week. But the selling didn't go very far. "We've reversed all the reaction to the original QE3 announcement as well as the decline in yields that occurred after the debt ceiling debate and the S&P downgrade of the U.S. triple-A rating," Garber said. "The market has priced in any tapering in bond purchases the Fed could do and if that tapering does not materialize, yields will go lower," he contended. Garber cited 2.45 percent on the 10-year yield as a key technical support level. "If that were to give way, a move down to the 2.25 percent area is likely," he said. Benchmark 10-year Treasury notes were unchanged in late trade, yielding 2.59 percent. Earlier, they were up as much as 15/32, with a yield of 2.518 percent. For the week, the 10-year yield was on track to fall 16 basis points, which would be its steepest weekly decline since June 2012, according to Reuters data. Friday's initial price gains in Treasuries were largely driven by remarks from the Fed chief. Bernanke, at a conference Wednesday sponsored by the National Bureau of Economic Research said a "highly accommodative policy is needed for the foreseeable future." The bond market bounce was also fueled by safe-haven bids due to overseas developments, analysts said. Portugal's creditors were set to start reviewing its bailout on Monday, but the country asked for a delay until August after President Anibal Cavaco Silva rejected a plan to heal a government rift, throwing the euro zone into political disarray. Traders dumped Portuguese government debt with five-year yield jumping to 7.75 percent, its highest level in eight months. They shifted money into Treasuries, German Bunds and other less risky government debt, analysts said. As Portugal's situation was a reminder of the risk from the euro zone debt crisis, a top Chinese official signaled that Beijing might allow economic growth significantly below 7 percent in the second half of the year. Declining Chinese demand has exerted downward pressure on oil and other commodity prices globally. Inflation in the United States has softened this year, complicating the Fed's decision whether to reduce its $85 billion monthly bond purchase program later this year. Some Fed policymakers raised concerns that reducing stimulus too soon might exacerbate the risk of deflation, a downward price spiral that crippled Japan's economy for a decade. The core rate on personal consumption expenditures, the Fed's preferred inflation gauge, was 1.1 percent in May , far below its 2 percent goal. U.S. inflation data released on Friday, however, suggested the worrisome price trend might be turning around with the expected pick-up in business activity and consumer spending in the second half. On Friday, the government said producer prices grew 0.8 percent in June, faster than the 0.5 percent forecast by economists polled by Reuters.
Separately, Thomson Reuters/University of Michigan's preliminary July index of consumer sentiment retreated from a near six-year high due to a decline in confidence about the prospects of the economic recovery. More economic data are set for release in the coming week and if any of it comes in weaker than anticipated, that would likely favor lower yields. Traders will look to see whether the rise in interest rates since May, including a sharp rise in mortgage rates, has hurt retail sales or slowed transactions tied to the housing market. They will examine the Consumer Price Index to see if businesses gained any pricing power or whether it points to disinflation. The latter trend would likely reinforce the Fed's resolve to maintain a highly accommodative monetary policy.
(Editing by Nick Zieminski)