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TREASURIES-Yields edge higher as stocks stabilize

Karen Brettell

* Higher stocks reduce safe-haven demand for bonds

* Core PCE revised downward in first quarter

NEW YORK, May 30 (Reuters) - Yields rose off 20-month lows on Thursday as higher stock markets showed improving risk appetite, though bonds pared price losses after data showed that inflation was lower than expected in the first quarter. Stocks opened higher, taking a breather from a trade tension-driven selloff that has knocked more than 5% off the value of major stock indexes since the start of May. Bonds briefly rallied, however, after data showed lower than expected inflation in the first quarter, boosting expectations that the Federal Reserve will need to cut rates to stimulate price increases. The core Personal Consumption Expenditures (PCE) index was revised downward to 1 percent in the first quarter, from 1.3 percent, even though gross domestic product growth was strong. 1/8 nLLAUGEFN9 3/8 The thing that everyone is looking at is core PCE number, said Tom Simons, a money market economist at Jefferies in New York. Everybody in the market whos been calling for a rate cut now has even more fuel for their argument. Inflation is too low and the Fed needs to lower rates to stoke some growth on that front. Interest rate futures traders are pricing in an 82-percent chance of at least one rate cut by December, and a 45-percent chance of two cuts this year, according to the CME Groups FedWatch Tool. Yields have tumbled this week on concerns that the U.S.-China trade war will harm international economic growth. Provoking trade disputes is "naked economic terrorism," a senior Chinese diplomat said on Thursday, ramping up the rhetoric against the United States amid a bitter trade war that is showing no signs of ending soon. U.S. President Donald Trump said on Thursday that the United States was doing well in trade talks with China and that Beijing wanted to make a deal with Washington.

(Editing by Nick Zieminski )

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