Wires

TREASURIES-Bond selloff pauses, U.S.-China trade deal in focus

Karen Brettell

* Treasury prices gain after three days of selling

* U.S. worker productivity fell in third quarter

* Treasury to sell $27 bln 10-year notes

NEW YORK, Nov 6 (Reuters) - Benchmark U.S. Treasury prices gained on Wednesday, following a three-day selloff, as investors waited on further signals that the United States and China will reach a deal to de-escalate their trade war. Bonds have weakened on optimism about a U.S.-China trade deal, and after data on Friday showed that job growth slowed less than expected in October while wages rose. The United States and China are working to narrow their differences enough to sign a "phase one" trade deal as early as this month, but its still unsure where they will sign it.

A stronger-than-expected service sector report on Tuesday added to the view that the U.S. economy is solid, and that the Federal Reserve is unlikely to continue cutting rates in the near-term, after making three rate reductions this year.

Data on Wednesday, however, showed that American workers were unexpectedly less productive during the third quarter, with growth in their output failing to keep up with hours worked. That was a bad number, said Mary Ann Hurley, vice president in fixed income trading at D.A. Davidson in Seattle. After three days of losses, bonds are also likely being supported by investor repositioning. We have been down quite a number of days in a row and there is maybe a little bit of short covering going on here, Hurley said.

Benchmark 10-year notes gained 12/32 in price to

yield 1.825%, down from 1.865% late Tuesday. The notes have technical support at around 1.85%. The yield curve between two-year and 10-year notes flattened to 22 basis points after reaching 24 basis points overnight, which was the steepest since July 24. The Treasury Department will sell $27 billion in 10-year notes on Wednesday, the second offering in the sale of $84 billion in new coupon-bearing supply this week. The government sold $38 billion in three-year notes on Tuesday to solid demand. It will also sell $19 billion of 30-year bonds on Thursday.

(Reporting by Karen Brettell; Editing by Andrea Ricci)

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