TREASURIES-U.S. bond market rallies on fears about Turkey

* U.S. Treasuries score best day in over two months

* U.S. core CPI comes in stronger than forecast in July

* Trump authorizes higher tariffs on Turkish steel, aluminum

* Overall solid August refunding underpins Treasuries demand

(Recasts, updates market action) NEW YORK, Aug 10 (Reuters) - The U.S. Treasury debt market rang up its best day in more than two months as investors scooped up low-risk government debt on anxiety about Turkey's financial problems spreading to other emerging economies and lenders exposed to the sector. Bond yields fell to near three-week lows with the benchmark 10-year yield recording its biggest one-day drop since late May as U.S. President Donald Trump escalated tension with Turkey, a NATO ally, by slapping higher tariffs on Turkish steel and aluminum imports, a move that put further pressure on the country's currency. "Our relations with Turkey are not good at this time," Trump said on Twitter. In response, Turkey's finance minister Berat Albayrak on Friday rolled out the government's new economic plan, promising central bank independence and tighter budget discipline, but giving few details to reassure investors and stem a currency crisis. Rattled traders dumped more lira on Friday for its biggest single-day loss since Turkey adopted a floating-currency regime in 2001. "Clearly the currency took a beating. That had to raise eyebrows," said Jerry Paul, senior vice president of fixed income at ICON Advisers in Denver. "On top of that, you had Trump piling on with the tariff stuff. People say, 'I just want to be in a safe asset."' The yield on benchmark 10-year Treasury notes touched 2.855 percent, its lowest in almost three weeks. At 3:00 p.m. (1800 GMT), it was down over 8 basis points at 2.853 percent for its steepest one-day decline since slumping on a political crisis in Italy in late May. Wall Street and other major stock markets also fell.

Friday's safe-haven bids for Treasuries added to earlier buying following a solid August government debt refunding where the government raised nearly $40 billion of fresh cash for spending and debt servicing. "The latest auction cycle went pretty well. Demand seems to be there. It's comforting for the market," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co. in New York. Friday's drop in U.S. bond yields was limited after data showed underlying domestic inflation grew a tad more than forecast in July, reducing bets price growth would weaken in coming months, analysts said. The core rate of the consumer price index (CPI), which excludes volatile food and energy prices, increased 0.2 percent in July, lifting its annual gain to 2.4 percent for its biggest gain since September 2008, the Labor Department said on Friday. Friday, Aug. 10 at 1507 EDT (1907 GMT): Price

US T BONDS SEP8 144-19/32 42/32 10YR TNotes SEP8 120-92/256 21/32 Price Current Net Yield % Change


Three-month bills 2.0075 2.0453 -0.006 Six-month bills 2.1675 2.2214 -0.014 Two-year note 100-14/256 2.596 -0.057 Three-year note 100-58/256 2.6709 -0.071 Five-year note 100-22/256 2.7312 -0.082 Seven-year note 100-112/256 2.8053 -0.085 10-year note 100-36/256 2.8587 -0.076 30-year bond 99-160/256 3.0191 -0.066 YIELD CURVE Last (bps) Net

Change (bps)

10-year vs 2-year yield 26.10 -1.60 30-year vs 5-year yield 28.70 2.35


Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 18.75 -0.50


U.S. 3-year dollar swap 16.25 0.00


U.S. 5-year dollar swap 13.00 0.75


U.S. 10-year dollar swap 5.75 0.25


U.S. 30-year dollar swap -7.00 -0.25


(Reporting by Richard Leong Editing by Andrea Ricci)