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TREASURIES-U.S. yields fall on growth worries, U.K. gilt rally

Richard Leong

* BOE's Carney remarks send U.K. yields to 2-1/2 year lows

* NYC business outlook turns most dour in a decade - ISM-NY

* Investors most upbeat on Treasuries since late May - survey

* U.S. financial markets to close early on Wednesday

(Updates market action,) NEW YORK, July 2 (Reuters) - U.S. Treasury prices rose on Tuesday, with 10-year yields falling below 2%, on renewed safe-haven demand due to anxiety about slowing global economic growth and reduced optimism about the restart on U.S.-China trade talks. U.S. yields were also pressured by a drop in British yields to 2-1/2 year lows after Bank of England Governor Mark Carney cited risks from Brexit and trade conflicts in a speech that prompted speculation the BOE may lower interest rates in the next 12 months. At the G20 summit in Japan last weekend, Washington and Beijing agreed to renegotiate after U.S. President Donald Trump offered concessions, including no new tariffs and an easing of restrictions on tech company Huawei, while China approved making unspecified new purchases of U.S. farm products. While this development is seen as encouraging for the global economy, traders and investors remain cautious about a trade deal between the world's two biggest economies due to the lack of details about the resumption of talks. "We're headed in a very good direction," White House trade adviser Peter Navarro said in an interview with CNBC television. "It's complicated, as the president said, correctly, this will take time and we want to get it right. So let's get it right."

Traders and investors have since shifted focus to the spate of weaker-than-expected manufacturing data around the world, which may push the U.S. Federal Reserve and other major central banks to consider easing their monetary policies, analysts said. "In general, the initial reactions post-G20 has faded a bit," said Jonathan Cohn, interest rate strategist at Credit Suisse. "We are seeing weakness in global PMIs." Earlier Tuesday, the six-month business outlook among New York City's purchasing managers dropped to the lowest in a decade in June, the Institute for Supply Management-New York said. The softening in manufacturing activity around the world stemmed largely from the trade conflict between the United States and its trading partners. The cloudy economy outlook has underpinned the appeal of low-risk U.S. government bonds. Bond investors were the most bullish about owning U.S. longer-dated government debt since May 28, a JPMorgan survey showed on Tuesday. At 12:54 p.m. (1654 GMT), benchmark 10-year U.S. Treasury note yields were down 5.40 basis points at 1.979%. They held above 1.974% reached on June 20, which was their lowest since November 2016. The U.S. bond market will close early at 2 p.m. on Wednesday, ahead of the U.S. July Fourth holiday on Thursday. July 2 Tuesday 12:41PM EDT/ 1641 GMT Price

US T BONDS SEP9 156-3/32 1-3/3210YR TNotes SEP9 128-40/256 0-120/256Price Current NetYield % Change

(bps)

Three-month bills 2.1575 2.2056 0.006Six-month bills 2.03 2.0796 -0.015Two-year note 99-192/256 1.7532 -0.034Three-year note 100-36/256 1.7008 -0.043Five-year note 100-8/256 1.7434 -0.053Seven-year note 100-44/256 1.8487 -0.05510-year note 103-144/256 1.9757 -0.05730-year bond 107-184/256 2.5063 -0.051

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 4.75 -0.75

spread

U.S. 3-year dollar swap 3.25 -0.25

spread

U.S. 5-year dollar swap -0.50 -0.25

spread

U.S. 10-year dollar swap -4.00 0.25

spread

U.S. 30-year dollar swap -31.50 0.25

spread

(Reporting by Richard Leong; Editing by Jonathan Oatis and Richard Chang)