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TREASURIES-Prices rally after ECB pushes out rate hike to 2020

Kate Duguid

NEW YORK, March 7 (Reuters) - Prices on Treasury bonds of all maturities rose on Thursday morning after the European Central Bank delayed its first post-crisis interest-rate hike until 2020 and offered banks a fresh round of loans to prevent a credit crunch that could worsen the European Union's economic slowdown.

The bank had previously said rates would remain at their record low levels through the summer, but it said it now expected them to stay there "at least through the end of 2019."

Weaker global growth, the U.S.-China trade war, Brexit uncertainty and simmering debt concerns in Italy have taken their toll on a fragile euro zone, making it harder for the central bank to withdraw its decade-long stimulus as planned.

While investors had long stopped pricing in an ECB rate increase this year, few were expecting the bank to change its policy message, causing yields on European government bonds and the euro to fall after the announcement.

Treasury yields followed suit, with the 10-year benchmark note down 3.3 basis points at 2.659 percent. The German 10-year bund was 4.1 basis points lower at 0.088 percent, and the Italian 10-year yield was 7.7 basis points lower, last at 2.537 percent. It had fallen from its last close by as much as 12.2 basis points earlier in the morning.

"The ECB news added to the rally that was already in motion," continuing the flight-to-quality trend the market has seen in the past few days, said George Goncalves, head of U.S. rates strategy at Nomura Securities International.

"Even though equities are not under a lot of pressure," said Goncalves, "we're in an environment where all central banks are turning dovish and it's hard for rates to sell off."

Government bond yields rise with expectations of interest-rate hikes. A pause in the hiking cycle, or an interest-rate cut, leads investors to seek safety in government debt while returns on riskier assets worsen, or become increasingly volatile.

The number of Americans filing applications for unemployment benefits unexpectedly fell last week, pointing to strong labor market conditions despite signs that job growth was slowing.

While other data on Thursday showed an improvement in worker productivity in the fourth quarter, the trend remained sluggish. Labor costs continued to rise at a moderate pace in the last quarter, suggesting benign inflation pressures that support the Federal Reserve's so-called patient stance toward further interest rate increases this year.

At the other end of the Treasury yield curve, the two-year yield fell 3.6 basis points, last at 2.484 percent. The 30-year yield fell 2.8 basis points to 3.042 percent.

(Reporting by Kate Duguid; Editing by Steve Orlofsky)