(Recasts with Catalonia speech, adds quotes, updates prices)
* Catalonia allows for independence talks with Madrid
* U.S. inflation data later this week in focus
* Treasury to sell $56 billion in supply this week
NEW YORK, Oct 10 (Reuters) - U.S. Treasury prices pared gains on Tuesday after Catalonia's leader proclaimed independence for the region but suspended the effects pending talks, easing some immediate concerns about violent clashes on the issue. Carles Puigdemont stopped short of seeking the explicit support of the chamber for the declaration of independence, allowing for talks with the Madrid government. They temporarily kicked the can (down the road) on Catalonia, said Aaron Kohli, an interest rate strategist at BMO Capital Markets in New York. Catalonia's efforts to secede have stoked concerns about populist movements in the euro zone that could damage the blocs economic strength and single currency. If the region splits from Spain "that is going to create economic disruption, and that's bad for the Spanish economy and the euro zone as a whole," said Mary Ann Hurley, vice president in fixed income trading at D.A. Davidson in Seattle.
Benchmark 10-year Treasury notes were up 7/32 in
price to yield 2.343 percent after falling as low as 2.319 percent. Investors were also focused on who is likely to be the next Federal Reserve Chair, after Fed Governor Jerome Powell was reported as canceling a speech scheduled for Friday. It instantly had the implication of everyone thinking hes going to be nominated and doesnt want to speak, said Kohli. Powell is viewed as a frontrunner for the job along with former governor Kevin Warsh, who is seen as more hawkish. The Fed will release minutes from its September policy meeting on Wednesday. Producer price data on Thursday and consumer price data on Friday will next be in focus for any signs of higher prices, after the governments employment report for September showed a rise in wages that boosted expectations that inflation is increasing. Benchmark 10-year Treasury yields briefly jumped to 2.402 percent on the data on Friday, the highest since May 1. Some analysts have said that September's rise in wages may be because adverse weather impeded lower-income workers from getting to work more than it did higher-income workers. "The data is really very hard to read right now because its hurricane-impacted," Hurley said. The Treasury will sell $56 billion in new coupon-bearing supply this week, including $24 billion in three-year notes and $20 billion in 10-year notes on Wednesday, and $12 billion in 30-year bonds on Thursday.
(Reporting by Karen Brettell in New York; Editing by James Dalgleish)