TREASURIES-Bond prices drop on euro-zone data surprise; auction eyed
* U.S. Treasury to sell $35 billion five-year notes
* Euro-zone data shows private-sector expansion
* FOMC, nonfarm payrolls data key next week
NEW YORK, July 24 (Reuters) - Prices of safe-haven U.S. Treasuries fell on Wednesday as economic data pointed to a surprising expansion in the euro zone's private sector, with investors eyeing a sale of U.S. debt later in the session. Private industry in the euro zone expanded for the first time in more than a year in July, with a jump in Markit's "flash" Eurozone Composite PMI to 50.4. The data helped drive investors into riskier assets such as stocks, said Andrew Wilkinson, chief economic strategist with Miller Tabak & Co. LLC. in New York. "Likewise, the yield on the 10-year U.S. note has once again rejected sub-2.50 percent levels on signs of growing risk appetite," he added. In addition, sales of new U.S. single-family homes vaulted to a five-year high in June, showing little signs of slowing in the face of higher mortgage rates. "The housing sector of the economy is better than we thought with the final data in for June," said Chris Rupkey, chief financial economist with Bank of Tokyo-Mitsubishi UFJ in New York. The benchmark 10-year note dropped 22/32 in price on Wednesday to yield 2.588 percent, from 2.507 percent late on Tuesday. The 30-year bond slid 1-03/32 in price to yield 3.646 percent, up from 3.58 percent late on Tuesday.
Investors were also awaiting a $35 billion auction of five-year notes scheduled for 1 p.m. (1700 GMT). "The continued cheap funding should help spur demand from investors wishing to put on carry trades, which are getting back in vogue," Nomura analysts said in a note to clients. The U.S. Treasury sold $35 billion in two-year notes on Tuesday in a sale that analysts called uneventful. Capping the $99 billion in new intermediate debt issuance this week, the Treasury will sell $29 billion in seven-year notes on Thursday. With little significant economic data scheduled for this week, markets are waiting for two key events in the coming week: a two-day policy meeting by the U.S. Federal Reserve and July nonfarm payrolls data. The Fed meets on Tuesday and Wednesday. Investors will scour the Fed's statement on the second day for any hints of when the bank might begin slowing its $85 billion per month in purchases of Treasuries and mortgage-backed securities. Most economists believe the Fed will begin reducing its bond buying in September, though some have pushed back their expectations to later in the year. As part of that stimulus, the Fed on Wednesday bought $1.47 billion of Treasuries maturing between February 2036 and May 2043. The nonfarm payrolls data will be released on Aug. 2. The job market's health will play a major role in the Fed's decision to pull back on bond buying. Policymakers want to see the unemployment rate closer to 6.5 percent from its current 7.6 percent.