* U.S. jobless claims fall to lowest in over 4 years
* U.S. sells $13 billion in 30-year bonds
* Spain rating cut underscores euro zone fears
* Fed buys $1.25 billion TIPS for Operation Twist
(Updates market action, adds quote)
By Richard Leong and Luciana Lopez
NEW YORK, Oct 11 (Reuters) - U.S. Treasuries prices rose onThursday in choppy trading as worries about the health of theeuro zone after a downgrade of Spain's debt and uncertaintyaround November's U.S. election outweighed a lackluster sale of30-year debt.
The U.S. Treasury sold $13 billion of 30-year bonds at ahigh yield of 2.904 percent. Analysts said demand was soft, withprimary dealers accounting for the highest share of purchasessince January.
That was a contrast to auctions earlier in the week ofthree- and 10-year debt, which both saw stronger demand.
"The auction looked weak, but I prefer to look at thebroader picture," said Suvrat Prakash, an interest ratestrategist with BNP Paribas in New York.
"When you look at all three auctions, it tells you quitestrongly that investor demand is there and there's good supportfor the market to be at these historically low rates."
Investors fretted about a downgrade to Spain's sovereigncredit rating by Standard & Poor's late on Wednesday to barelyabove junk. Markets are also waiting for the results of aMoody's review of Spain's rating, which could see it being cutto junk. Those results are expected this month.
Spain's rating woes piled on the pressure for the country toseek help from its European partners, which would make it thelargest economy yet in the monetary union to ask for afull-blown bailout.
But Treasuries nonetheless seesawed for part of the session,as data suggested the U.S. labor market might be strengthening.
First-time filings for unemployment benefits unexpectedlyfell to their lowest since February 2008, but the governmentsaid one-time factors likely caused the steep 30,000 drop inweekly claims.
"This suggests some improvement in the labor market," whichfueled some selling in Treasuries earlier in the session, saidDavid Keeble, global head of interest rate strategy at CreditAgricole Corporate & Investment Bank in New York.<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphics:Euro debt crisis:U.S. jobless claims:U.S. trade deficits:U.S. import prices:
Meanwhile, the Federal Reserve purchased $1.25 billion inTreasury Inflation Protected Securities under its OperationTwist. This program involves selling shorter-dated Treasuriesand purchasing longer-dated issues in a bid to hold downlong-term borrowing costs to bolster the economy.
The U.S. Treasury said on Thursday it will reopen a 30-yearTIPS issue by $7 billion on Oct. 11.
On the open market, regular 10-year Treasury notes
were 1/32 higher in price, yielding 1.679 percent,from 1.680 percent late on Wednesday.
rose 14/32 in price afterflirting with a near 1 point drop earlier. The 30-year yield waslast at 2.863 percent, from 2.885 percent late on Wednesday.
Treasuries might be safe vehicles to park cash until thereis progress with the debt problems in Europe and U.S. lawmakersdeal with expiration of major tax breaks and automatic spendingcuts at year-end - referred to as "the fiscal cliff," analystsand investors said.
"We are bouncing around in a range here. This is a goodentry here," said Matt Duch, portfolio manager at CalvertInvestment Management in Bethesda, Maryland, which overseesabout $12 billion in assets.
(Editing by James Dalgleish)
((-------MARKET SNAPSHOT AT 2:03 p.m. EDT (1803 GMT)-------March T-Bond(+)March 10-Year note(+)Change vs CurrentNyk yieldThree-month bills0.0975 (+0.00) 0.099Six-month bills0.1475 (+0.00) 0.150Two-year note99-31/32 (-) 0.270Five-year note99-26/32 (-02/32) 0.66310-year note99-17/32 (+01/32) 1.67930-year bond97-24/32 (+14/32) 2.863DOLLAR SWAP SPREADSLAST ChangeU.S. 2-year dollar swap spread 11.75 (-0.25)U.S. 3-year dollar swap spread 11.25 (+0.25)U.S. 5-year dollar swap spread 12.75 (-0.25)U.S. 10-year dollar swap spread 4.50 (-0.75)
U.S. 30-year dollar swap spread -23.00 (-0.75)))
Keywords: MARKETS USA BONDS/