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Treasury prices continue rise after stocks drop

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U.S. Treasury prices rose on Tuesday, getting a lift from investors turning away from weakening Wall Street equities and reawakened geopolitical worries due to fighting in Iraq.

Gains were strongest among long maturities, with prices of 30-year Treasurys up 31/32 to yield 3.41 percent, down from Monday's 3.46 percent. Yields on the 30-year had earlier gone as low as 3.39 percent.

"The equity market has ticked down,'' said Charles Comiskey, head of Treasury trading at Scotia Bank in New York. "There's some news about some (air strikes) in Iraq ...."

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Earlier, an Iraqi military spokesman said the government had carried out air strikes on a militant gathering in the town of al-Qaim near the Syrian border. A hospital official in Qaim said 17 people died in the strikes and 52 were wounded, a number that was impossible to confirm independently.

U.S. stocks, which ended a six-day rally last week, surrendered morning gains and turned down in early afternoon after the Standard & Poor's 500 index of top companies had touched a new all-time, intraday high. The Dow Jones index dropped more than 100 points in afternoon trading.

Wall Street prices had benefited from economic data showing rising house prices and increasingly confident consumers.

But the data portraying an improving U.S. economy did little for bond prices, which were up early in light volumes ahead of a sale by the U.S. Treasury of $30 billion of two-year notes.

The high yield on the notes was 0.511 percent, according to Treasury data.

"The two-year got by with a passing grade of C minus, staying in line with the last several auctions," said interest rate strategist Jim Vogel at FTN Financial. "Despite the rate increase on this (morning's) data and a stronger dollar, the action is simply further out the curve."

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The two-year Treasury was last yielding 0.46 percent, unchanged for the day in secondary trade.

Benchmark 10-year notes were up 12/32 to yield 2.59 percent, versus 2.63 percent late on Monday. The 10-year notes yielded 3 percent at the beginning of 2014 and have been trading in a tight range around 2.60 percent since February.

Earlier, price gains widened after the closely watched S&P/Case-Shiller survey of single-family home prices showed a 0.2 percent rise on a seasonally adjusted basis during April, far short of a 0.8 composite forecast.

Investors on Monday got upbeat news about U.S. housing values, which are tracked as central to consumer purchasing power, when the National Association of Realtors reported a 4.9 percent jump in May for sales of existing homes.

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Traders discounted the Case-Shiller data as out of date and likely an exception to signs that the housing sector was pulling out of a recent slump, according to money market economist Tom Simons at Jefferies.

—By Reuters