TREASURIES-Prices edge lower as jobless claims near six-year low
* Treasury sold $29 billion in 7-year notes
* New U.S. jobless claims fell to near six-year low
* Four-week average of new claims fell 7,000 to 308,000
NEW YORK, Sept 26 (Reuters) - U.S. Treasuries prices slipped on Thursday, reversing some of their recent gains, after new jobless claims dropped and stock markets edged higher.
The bond market had rallied since the Federal Reserve last week decided to put off unwinding monetary accommodation until it had more confidence in the sustainability of the recovery.
The number of Americans filing new claims for jobless benefits fell last week to a near six-year low, a report showed, raising expectations for stronger-than-forecast September job growth. The jobs report will be released next Friday.
Better economic data could revive speculation the U.S. central bank may start winding down its asset-buying program sooner than expected, which would pressure bond prices and send yields higher.
"Most traders think that we're still going to see yields trending higher," said Kim Rupert, managing director of fixed income analysis at Action Economics in San Francisco. "Most people do believe the Fed will eventually start to pull back on asset purchases, although it might be in 2014 at this point."
Benchmark 10-year Treasury notes, were down 3/32 in price, yielding 2.65 percent, compared with 2.63 percent on Wednesday. Thirty-year Treasury bonds fell 8/32, yielding 3.69 percent, compared with Wednesday's 3.67 percent.
New jobless claims fell last week to a seasonally-adjusted 305,000. The four-week average of new claims, which evens out weekly volatility, fell 7,000 to 308,000, the lowest level since June 2007.
Ian Lyngen, Treasury strategist at CRT Capital Group in Stamford, Connecticut, said the claims data suggests job growth of about 200,000, which is higher than consensus.
"The Fed may have to wind down and exit these policies quicker than they think," said Chris Rupkey, managing director and chief financial economist at Bank of Tokyo-Mitsubishi UFJ, referring to monetary policy.
The Treasury sold $29 billion in seven-year notes with a high yield of 2.058 percent.
Still, plenty of uncertainty lies ahead, including whether the non-farm payrolls report can be released on time next Friday. The government could shut down on Oct. 1 should budget negotiations on Capitol Hill result in an impasse.
"There will probably be a brief government shutdown next week, maybe for a couple of days. It doesn't look like there's enough time, much less will, to avoid it. The filibuster kind of helped make that happen," said Steve Van Order, fixed-income strategist with Calvert Investments in Bethesda, Maryland.
He said for bond traders, the main immediate impact will be that the Labor Department could have trouble getting the employment report out on Friday - if the government shuts down longer than Tuesday.
In addition, unless Congress raises the debt ceiling by Oct. 17, the Treasury will only have $30 billion in cash on hand, leaving the United States on the edge of an unprecedented default, the Treasury said on Wednesday.
"Raising the debt ceiling could be more stressful than people had been thinking not that long ago," Van Order said.
As part of its ongoing efforts to foster economic activity and lower unemployment, the New York Fed purchased $1.565 billion in Treasury coupons on Thursday with maturities ranging from Feb. 15, 2036 through Aug. 15, 2043.
Separately, the Fed said the overnight fixed-rate reverse repurchase agreement operational exercise that its open market trading desk at the Federal Reserve Bank of New York has been conducting daily this week will have its allocation limit increased.
The limit will rise from the current $500 million per counterparty per day to $1 billion per counterparty per day - beginning with the operation to be conducted on Friday. All other terms of the exercise will remain the same.
The Fed said the operations are a "readiness exercise" and "a matter of prudent advance planning" by the Federal Reserve.
"These operations do not represent a change in the stance of monetary policy, and no inference should be drawn about the timing of any change in the stance of monetary policy in the future," the Fed said.