TREASURIES-Bond prices rise for second day on weaker economic data
* Durable goods orders fell 7.3 pct in July
* A category seen as a business spending proxy fell 3.3 pct
* Treasury to sell $98 billion of notes this week
NEW YORK, Aug 26 (Reuters) - U.S. Treasuries prices rose for a second straight session on Monday as weaker-than-expected data on manufactured goods appeared to argue for the Federal Reserve to begin trimming its bond purchases later this year, rather than sooner.
The Commerce Department reported on Monday that U.S. orders for long-lasting manufactured goods fell 7.3 percent in July. The report came on the heels of data on Friday showing a sharp decline in new-home sales in July, which raised concern that the recent jump in interest rates was hurting the housing sector.
Ten-year Treasury note prices rose 7/32 on Monday, following the data on durable goods orders, whose drop exceeded the 4 percent fall economists polled by Reuters had forecast. Ten-year yields eased to 2.80 percent from 2.82 percent late on Friday.
A category of orders often viewed as a proxy for business spending, non-defense capital goods orders excluding aircraft, fell 3.3 percent, after four straight months of gains.
"The durable goods orders number, combined with Friday's surprise 13.4 percent drop in July new-home sales, might indicate that the economy is uneven and that the Fed may not have a clear path to taper," Kevin Giddis, senior managing director and head of fixed income capital markets at Raymond James, said of what drove Treasuries prices higher.
With debt supply due this week, however, and expectations that the Federal Reserve would begin to curb its bond purchases sometime this year, the market's response to the weaker-than-forecast orders data was relatively mild.
RBS Securities traders said they were neutral on Treasuries, preferring to stay sidelined, given a "soup" of conflicting technical signals.
"Daily and weekly momentum studies remain oversold, but 10-year yields are still above a former bull trendline that had been in place for over six years and which comes in at about 2.70 percent this month," said William O'Donnell, head Treasury strategist at RBS Securities in Stamford, Connecticut. "This trendline is now a resistance for 10-year Treasuries."
U.S. Treasuries yields fell from two-year highs on Friday after the drop in new single-family home sales in July raised concerns that rising mortgage rates may weigh on the economic recovery.
U.S. government debt yields had climbed to their highest levels since July 2011 as a string of encouraging economic indicators raised hopes that U.S. growth is gaining momentum, making it more likely that the Federal Reserve will begin reducing its bond purchases at its next policy meeting in September.
Ten-year Treasury yields had climbed from 1.60 percent at the beginning of May.
Treasury auctions of $98 billion in new two-year, five-year and seven-year debt this week could keep yields from easing further.
Tending to damp volume, many investors have sold bonds and moved to the sidelines on expectations of increased volatility heading into the Fed's meeting on Sept. 17-18.
Primary dealers surveyed before the Federal Reserve's July policy meeting said they expected the U.S. central bank to trim its asset purchases by $15 billion starting in September.
Shorter and intermediate-dated notes have underperformed since the Fed released minutes of its July meeting on Wednesday.
"For the past few months, we have consistently argued that the belly of the U.S. yield curve was vulnerable to a sell-off," said Amrut Nashikkar, an analyst at Barclays in New York. "We now expect 10-year yields to be at 3.1 percent by the end of this year and continue rising to 3.75 percent by the third quarter of 2014."
Previously, Barclays had forecast 10-year yields to rise to 2.9 percent by mid-2014.
"We are maintaining the view that rates will continue to move higher, but now believe that the drift will be faster than the market expects as we get closer to normalization of monetary policy," Nashikkar said.
Five-year note yields rose as high as 1.70 percent last Thursday, but fell back to 1.63 percent on Friday and 1.60 percent on Monday.
The August jobs data, due on Sept. 6, is the most influential economic indicator due before the Fed's September meeting.
The Fed on Monday bought $1.496 billion worth of Treasury coupon issues in the February 2036 to August 2043 sector of the curve.
Meanwhile, the Treasury's weekly auctions of three- and six-month bills were well bid. The Treasury will sell $25 billion in 14-day cash-management bills on Tuesday.