* IMF warns euro zone crisis threatens global growth
* U.S. sells $21 billion in 10-year notes
* Fed sells $7.8 billion in short-dated debt
(Updates market action after debt sale, adds comment)
By Richard Leong and Luciana Lopez
NEW YORK, Oct 10 (Reuters) - U.S. Treasuries prices rose onWednesday after a sale of 10-year notes on underlying worriesabout the global economy and a squeeze on short positions.
While traders had sold off earlier in the day to prepare forthe $21 billion sale Of 10-year notes, part of this week's $66billion in coupon-bearing offerings, Treasuries retraced thatlost ground after the auction.
"There was some short covering, and that helped give theauction a pretty solid bid," said Kim Rupert, managing directorof global fixed income analysis at Action Economics LLC in SanFrancisco.
As prices turned higher, she said, that spurred more shortsto step in and cover their positions.
But she cautioned that volume was thin, as well.
Nomura stategists said in a note that the 10-year auctioncame 1.4 basis point through the 1 p.m. level after going in atthe highs of the day, with strong stats overall despiteseemingly rich levels. Non-dealer demand was strong, with bothdirects and indirects coming in above average, and Nomura thinksthis is a signal that there is broad-based demand for 10s atthese levels.
Worries about the global economy, including the ongoing eurozone debt crisis, also supported safe-haven Treasuries, traderssaid.
In a report on Wednesday, the International Monetary Fundwas sharply critical of European policymakers for their failureto restore confidence.
"The fear factor remains. The IMF underscored the bad newsfrom Europe and its impact on the global economy," said SharonStark, chief fixed income strategist at Sterne Agee & Leach inBirmingham, Alabama.
The IMF, which will hold its semi-annual meeting in Tokyolater this week, downgraded its outlook on global economicgrowth and said the euro area is likely to contract this year.It also called the euro zone debt crisis the biggest risk to theworld's financial health.
This dour view, together with warnings from Alcoa, Chevronand several other major U.S. firms on their future earningsresults, should support demand for the longer-dated Treasuriessupply this week, Stark said.
The U.S. Treasury Department will complete this week's $66billion worth of coupon debt offerings with a $13 billion saleof 30-year bonds on Thursday.
Graphic: Euro debt crisis:
The Federal Reserve also sold $7.8 billion in Treasuries dueApril 2014 to February 2015 under its Operation Twist. Thisprogram involves selling shorter-dated Treasuries and purchasinglonger-dated issues in a bid to hold down long-term borrowingcosts to bolster the economy.
In addition, the Federal Reserve in its September Beige Bookreport said its business contacts suggest economic activity isstill expanding modestly in most regions though pockets ofweakness and strained labor markets remain a problem for somedistricts.
The Beige Book offers anecdotal information on U.S. businessactivity collected by the Fed's 12 regional banks, and thefindings will likely become "the basis of discussion" among Fedpolicymakers when they meet on Oct. 23-24, Sterne's Stark said.
Three top Fed officials -- Minneapolis Fed chief NarayanaKocherlakota, Fed Governor Daniel Tarullo and Dallas FedPresident Richard Fisher -- will speak at separate events onWednesday.
Minneapolis Federal Reserve Bank President NarayanaKocherlakota, who proposed last month that the Fed hold interestrates near to zero until U.S. unemployment was back under 5.5percent, also said his proposal required a collective forecast.
Fed Vice Chairwoman Janet Yellen said late Tuesday lowshort-term interest rates are essential to support the U.S.economy. She spoke at an event sponsored by the IMF and theJapanese Ministry of Finance.
On the open market, benchmark 10-year notes
07/32 higher in price, yielding 1.691 percent from 1.7130percent on Tuesday.
Thirty-year bondsrose 19/32 in price to yield2.895 percent, compared to 2.925 percent on Tuesday.
(Editing by Theodore d'Afflisio)
((-------MARKET SNAPSHOT AT 2:20 p.m. EDT (1820 GMT)-------March T-Bond(+)March 10-Year note(+)Change vs CurrentNyk yieldThree-month bills0.1 (+0.00) 0.102Six-month bills0.145 (+0.00) 0.146Two-year note99-31/32 (-) 0.266Five-year note99-27/32 (+) 0.66010-year note99-13/32 (+07/32) 1.69130-year bond97-04/32 (+19/32) 2.895DOLLAR SWAP SPREADSLAST ChangeU.S. 2-year dollar swap spread 12.25 (unch)U.S. 3-year dollar swap spread 11.00 (-0.50)U.S. 5-year dollar swap spread 13.50 (+0.25)U.S. 10-year dollar swap spread 5.50 (unch)
U.S. 30-year dollar swap spread -22.00 (+0.25)))
Keywords: MARKETS USA BONDS/