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TREASURIES-Yields fall on stock market jitters, month-end demand

* Nerves about volatile stock markets seen helping bonds

* Month-end demand may boost fixed income

* Fed chief Powell's testimony in focus next week

NEW YORK, Feb 23 (Reuters) - U.S. Treasury prices gained on Friday as uncertainty about recent stock market volatility helped boost demand for the bonds and as investors began to rebalance portfolios ahead of the end of the month. Continuing nerves about the direction of stocks led some investors to seek out lower-risk assets. "There's been some substantial buying that seems to be sustaining amid concerns about the equity markets," said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott in Philadelphia. "We're also entering the month-end rebalancing period, and after the spurt of volatility we had in all markets, but particularly in equities, it may encourage some rebalancing towards fixed income," LeBas said.

Benchmark 10-year notes were last up 7/32 in

price to yield 2.892 percent. The yields have fallen from a four-year high of 2.957 percent on Wednesday. Investors will turn their attention to Federal Reserve Chair Jerome Powell's first semi-annual Humphrey Hawkins testimony to Congress on Tuesday and Thursday, which will be watched for any update on the U.S. central bank's economic forecasts in light of the Trump administration's tax cuts and spending plans, and a recent uptick in inflation. "It's not just the recent data, because in the short term it's very random, but on the Fed's level of confidence in inflation over the next six to 12 months," said LeBas, adding that inflation "will establish whether we see three or four rate hikes during the year." Fed speakers on Friday will include New York Fed President William Dudley, Boston Fed President Eric Rosengren, Cleveland Fed President Loretta Mester and San Francisco Fed President John Williams. Bonds were also supported on Friday by the completion of $258 billion in new supply this week, which was the second largest ever over a three-day period. The Treasury is facing higher debt needs due to the government's tax overhaul, which is expected to worsen the U.S. deficit, while a two-year budget deal reached this month will increase spending by $300 billion. The U.S. government also needs to replenish its cash balance, which was depleted as lawmakers negotiated to increase the debt ceiling, and enlarge its debt auctions to make up for declining purchases by the Fed, which had been tacked onto debt sales and not included in the auction sizes. Bank of America Merrill Lynch on Friday said it expects 10-year yields to rise to 3.25 percent this year because of faster economic growth and due to higher debt issuance amid weakening demand.

(Editing by Paul Simao)

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