* U.S. ISM manufacturing rises but offset by construction data
* U.S. consumer spending grows 0.9 percent
* Bias of govt debt market still on the short side
NEW YORK, May 1 (Reuters) - U.S. benchmark Treasury yields fell to their lowest in two weeks on Thursday in a market that continued to cover short positions ahead of Friday's all-important U.S. nonfarm payrolls report.
Thursday's U.S. economic reports were in general positive, which should suggest that Treasuries should continue to sell off, not rally.
"The fact that we have seen stocks pull back and Treasuries rally despite a strong ISM number would suggest that the market is positioned relatively short for the payrolls number tomorrow," said Ian Lyngen, senior government bond strategist, at CRT Capital in Stamford, Connecticut.
The Institute for Supply Management (ISM), for instance, said its index of national factory activity rose to 54.9 in April, up from 53.7 in March. It was the best reading since December. However, that was offset by a weaker-than-expected rise in U.S. construction spending, which grew a marginal 0.2 percent, compared with expectations for a 0.5 percent increase. 1/2ID:nLLA1GEARP 3/8
Some analysts were perplexed as to why the bond market seemed to have reacted more to construction spending, which was backward-looking, instead of the ISM report, viewed as first-tier data.
CRT's Lyngen surmised that the tepid rebound in U.S. construction spending could further revise lower the already dismal gross domestic product growth figures for the first quarter.
Ahead of the Labor Department's non-farm payrolls report on Friday, the market remained on the short side, analysts said, with volumes light due to the May Day holidays in Europe and much of Asia.
A Reuters poll showed economists expect the U.S. economy to have created 210,000 jobs in March.
In morning trading, the benchmark 10-year U.S. Treasury note rose 7/32 in price to yield 2.62 percent, compared to 2.65 percent late on Wednesday. Yields fell as low as 2.61 percent, the lowest since April 15.
Stanley Sun, interest rate strategist, at Nomura Securities in New York, said the market's bias is still to sell Treasuries into strength especially as yields are wedged at the bottom of the range. "Most people kind of expect the range to hold. If we go down to 2.60 pct on the 10-year, we would be selling into strength."
Prices of 30-year Treasury bonds were up 15/32 to yield 3.43 percent, from 3.46 percent the previous session.
Treasury prices trimmed early losses after data showed U.S. consumer spending recorded its largest increase in more than four and a half years in March, rising 0.9 percent.
A separate report showed initial claims for staunemployment benefits increased 14,000 to a seasonally adjusted 344,000, higher than expected. But claims are volatile around this time of the year as the timing of the Easter and Passover holidays and school spring breaks makes it difficult to adjust for seasonal fluctuations.
(Editing by Chizu Nomiyama)