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TREASURIES-Record low euro zone yields drive down U.S. yields

Richard Leong

* U.S. private sector adds fewer workers than expected in June-ADP

* U.S. services growth cools to slowest pace in two years - ISM

* Euro zone yields tumble as Lagarde nominated as next ECB chief

* U.S. bond market shuts early, stays closed for Fourth of July

(Updates market action, adds quote) NEW YORK, July 3 (Reuters) - U.S. Treasury yields fell on Wednesday with 10-year yields hitting their lowest in over 2-1/2 years as euro zone yields tumbled on record lows on bets the European Central Bank's next chief would stay a dovish course to help the euro zone economy. Expectations of more ECB stimulus under Christine Lagarde, who had headed the International Monetary Fund, when she takes over from Mario Draghi in November raised the prospect that global bond yields have room to fall, analysts said.

"Treasuries rallied in sympathy with European bonds on news IMF head Christine Lagarde will be nominated to become the next ECB President as she is expected to pursue dovish monetary policy," said Karl Haeling, head of capital markets sales at LBBW. Reinforcing traders' perception of easy monetary policy was U.S. President Donald Trump's nominations of Christopher Waller and Judy Shelton to the Federal Reserve Board. Both are seen as dovish in their policy stance. Benchmark 10-year Treasury yields were down 2.40 basis points at 1.953%. They touched 1.939% earlier, which was the lowest since November 2016, as 10-year German bund yields reached a record low at -0.399%. U.S. 30-year yields fell to 2.465%, which was the lowest since October 2016. The U.S. bond market closed early, at 2 p.m. EDT (1800 GMT), on Wednesday, ahead of the U.S. July Fourth holiday on Thursday. The demand in Treasuries was curbed by the rally on Wall Street where major averages closed at record highs in an abbreviated session. The Fed, the ECB and other major central banks are considering whether to embark on lowering interest rates and/or buying more assets to combat sluggish inflation, and slowing growth exacerbated by global trade tensions. "It's monetary policy to the rescue," said Andrew Richman, director of fixed income at SunTrust Advisory Services. "There are expectations of a synchronization of policy easing among central banks." Even in the United States where its economic expansion hit a record run this month, there are signs of cooling. Payroll processor ADP said on Wednesday U.S. companies added 102,000 jobs in June, falling short of the 140,000 forecast by economists polled by Reuters. The prior month's figure was revised up to 41,000 from an originally reported 27,000 increase. Meanwhile, the U.S. trade gap widened to a five-month high in May, which was likely a drag on economic growth in the second quarter. The growth of the vast services sector fell to its slowest pace since July 2017, the Institute for Supply Management said.

Amid these omens of a decelerating economy, traders fully expect Fed officials will agree to lower U.S. interest rates by at least a quarter point at the end of July to preserve the longest economic expansion on record, based on CME Group's calculation of interest rates futures prices.

July 3 Wednesday 2:05PM EDT/ 1805 GMT Price

US T BONDS SEP9 156-22/32 0-19/3210YR TNotes SEP9 128-68/256 0-32/256Price Current NetYield % Change

(bps)

Three-month bills 2.1625 2.2105 0.006Six-month bills 2.03 2.0794 -0.006Two-year note 99-187/256 1.7636 -0.001Three-year note 100-30/256 1.7089 -0.003Five-year note 100-16/256 1.7368 -0.011Seven-year note 100-68/256 1.8343 -0.01710-year note 103-196/256 1.9532 -0.02430-year bond 108-132/256 2.4701 -0.038

DOLLAR SWAP SPREADS

Last (bps) Net

Change (bps)

U.S. 2-year dollar swap 3.25 -0.75

spread

U.S. 3-year dollar swap 1.50 -1.00

spread

U.S. 5-year dollar swap -2.00 -1.00

spread

U.S. 10-year dollar swap -5.25 -0.75

spread

U.S. 30-year dollar swap -32.00 0.25

spread

(Reporting by Richard Leong; editing by Jonathan Oatis and Susan Thomas)