TREASURIES-U.S. bonds rally on weak stocks, Chinese data
* Weaker-than-expected Chinese data revives bond bids
* In-line U.S. jobless claims signal moderate job growth
* U.S. to debut $15 bln in two-year floating-rate notes
* U.S. sold $15 bln in 10-year inflation-protected debt
NEW YORK, Jan 23 (Reuters) - U.S. Treasuries prices climbed on Thursday, with benchmark yields falling to six-week lows, as losses on Wall Street and data suggesting a slowing in Chinese manufacturing revived safe-haven bids for bonds.
Chinese factory figures and an industry report showing weaker factory growth in the United States reduced bets the Federal Reserve would accelerate its pace of trimming its bond-purchase stimulus. This helped propel benchmark yields to their lowest levels in nearly six weeks.
China's Flash Markit/HSBC PMI fell to 49.6 in January from December's 50.5, showing a faster rate of decrease in new export orders and employment. A reading below 50 signals a contraction in the manufacturing sector of the world's second-largest economy.
"The surprise economic data out of China this morning led people back to the safe haven of the bond market," said Ellis Phifer, market strategist at Raymond James in Memphis, Tennessee.
Bond investors are starting to look ahead to next Wednesday, when the Treasury will hold its inaugural auction of two-year floating-rate notes.
This is the first new type of U.S. government debt security since the introduction of Treasury Inflation-Protected Securities in 1997.
The debut of $15 billion in the two-year floating-rate note issue joins next week's fixed-rate supply of two-year debt ($32 billion), five-year notes ($35 billion) and seven-year debt ($29 billion).
In the meantime, the Treasury sold $15 billion in 10-year TIPS. The overall demand at the auction was the weakest since April 2009, but indirect bidding was above-average, accounting for more than half of the amount purchased.
"TIPS prices stabilized immediately after the auction, and that brought more buying into the Treasury market as a whole," said Jim Vogel, interest rate strategist at FTN Financial.
Prices on 10-year TIPS last traded at 98-17/32, up from 98 on Wednesday.
While U.S. and Chinese manufacturing data fell short of expectations, a government snapshot of the domestic labor market was mildly encouraging.
The U.S. Labor Department said 326,000 workers filed for first-time unemployment benefits in the week ended Jan. 18, matching the median forecast among economists polled by Reuters.
While U.S. economic data has been mixed, analysts said the latest results likely will not deter the Fed from further pulling back its bond-buying next week.
"The Fed is not going to want to just change course immediately after the first taper," said Phifer of Raymond James. "They're probably going to err to the side of taper."
Fed policy-makers will meet next Tuesday and Wednesday and analysts anticipate they will decide to further shrink their third round of quantitative easing which is aimed to hold down long-term borrowing costs to help the economy.
In December, the Federal Open Market Committee pared its monthly purchases of Treasuries and mortgage-backed securities by $10 billion to $75 billion in January. The Fed's policy-setting group is expected by some analysts to cut its monthly purchases by another $10 billion at its upcoming meeting.
Some traders and analysts downplayed the rise in bond prices as trading volume has remained below-average due to holiday-shortened week and a lack of top-tier U.S. economic data.
"We squeezed some of the shorts out, but we have been largely stuck in a narrow range for 1-1/2 weeks," said Thomas Roth, executive director of U.S. government bond trading at Mitsubishi UFJ Securities USA in New York.
On the open market, benchmark 10-year Treasury notes were 22/32 higher in price with a yield of 2.777 percent, down about 8 basis points from late on Wednesday.
The 10-year yield touched 2.759 percent in afternoon trading, a six-week low, as U.S. stocks continued to lose ground.
On Wall Street, the three major stock indexes fell sharply, with the Standard & Poor's 500 index losing 1.14 percent on the weak Chinese factory data.
The 30-year bond rose 1-12/32 in price to yield 3.68 percent, down about 8 basis points from Wednesday's close. The 30-year yield hit 3.661 percent earlier, which was its lowest level since early November, according to Reuters data.
The long-dated maturity was also bolstered by the Fed's latest QE3 buy-back, where the central bank purchased $1.39 billion in Treasuries due 2038-2043.