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Bonds Rise As Focus Shifts to Fed Meeting

U.S. Treasurys rose Friday as expectations the Federal Reserve will cut interest rates next week trumped a stock market rally that threatened to lure cash out of low-risk bonds.

Though investors have trimmed bets on an aggressive half-percentage-point dose of monetary easy next week, the market remains well positioned for a quarter-point move.

Meanwhile dealers said they still could not completely dismiss the notion of a larger cut.

"The idea is that any sort of surprise from the Fed will be a good one," said Carl Lantz, U.S. interest rate strategist at Credit Suisse in New York.

"It's a buy-the-dip mentality," Lantz added.

Benchmark 10-year notes rose 4/32 in price to yield 4.37 percent. Two-year notes , the most sensitive to monetary policy changes, gained 2/32 to yield 3.74 percent.

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