* Yields edge up from three-month lows as recent buying fades
* Data suggest sluggish growth, support view on Fed stimulus
* Investors snap up $7 billion in 30-year TIPS supply
* Fed buys $1.56 billion bonds due 2038-2043
NEW YORK, Oct 24 (Reuters) - U.S. Treasuries yields edged up from three-month lows on Thursday as buying tied to the view the Federal Reserve will not shrink its bond-purchase program until next year faded. The bond market rally paused as benchmark yields struggled to stay below 2.50 percent since Wednesday. "That's a pretty big hurdle for the bond market technically. A lot of the delayed tapering has been priced in," said Anthony Valeri, fixed income strategist at LPL Financial in San Diego. Ten-year Treasury note yield had fallen 11 basis points the prior two sessions after a government report on Tuesday showed employers hired fewer workers than expected in September, stoking fears the economy was slowing even before the government's 16-day shutdown. This disruption that stemmed from a Washington budget impasse, while seen harmful the economy, has spurred the view the Fed policy-makers will not change its $85 billion monthly bond purchases in a bid to avoid further damage to the recovery and investor confidence. On the other hand, some Fed officials have acknowledged the declining benefits of ongoing policy and growing risk for the central bank to hold these bonds for a protracted period. Still, policy-makers who will meet next week have said possible changes to its third round of quantitative easing are very dependent on economic data, though over the coming months they are likely to be skewed by the effects of the government shutdown, limiting insight into the actual state of the economy and to what degree the shutdown and the fight over raising the debt ceiling may have harmed growth. "What we've been seeing since the government shutdown and debt ceiling was resolved is a desire to jump back into Treasuries," said Jason Rogan, managing director in Treasuries trading at Guggenheim Partners in New York. "Most market participants are of the mind that the Fed is on hold for the foreseeable future." Global economic indicators pointed to slowing growth on Thursday. U.S. manufacturing output fell for the first time in four years while the euro zone economy lost momentum, surveys on Thursday showed.
Investors will be watching for any new information about Fed policy when the U.S. central bank meets next Tuesday and Wednesday, although it is seen as unlikely to reduce its monthly QE3 bond purchases until March. "Until we get more information, the market is uncertain where to go," said Aaron Kohli, interest rate strategist at BNP Paribas in New York. Benchmark 10-year Treasuries traded down 8/32 in price to yield 2.514 percent, up 3 basis points from late on Wednesday. The 10-year yield fell to a three-month low of 2.471 percent on Wednesday. It has declined from 3.00 percent on Sept. 5, before the Fed surprised investors by keeping the size of its purchase program unchanged. Yields have retraced about half of their increase in reaction to Fed Chairman Ben Bernanke hinting, back in May, the Fed might reduce its bond purchases by late this year. The Fed bought $1.56 billion in bonds due from 2038 and 2043 on Thursday as part of its ongoing purchase program. The government sold $7 billion more of a 30-year TIPS issue originally issued in February at an auction on Thursday. The supply fetched the strongest demand in a year, resulting in a yield of 1.330 percent, roughly 2 basis points below what traders had expected. "The Fed is on hold, but it's less likely to affect a 30-year bond," BNP Paribas' Kohli said. The second reopening of this TIPS issue due in February 2043 enlarged its outstanding amount to $23 billion. The Treasury said on Thursday it will sell $96 billion in new coupon-bearing supply next week, including $32 billion in two-year notes on Monday, $35 billion in five-year notes on Tuesday and $29 billion in seven-year notes on Wednesday.