TREASURIES-Yields fall as trade deal seen less certain

Karen Brettell

* Optimism ebbs on U.S.-China trade deal

* Bonds retrace selloff exaggerated by technical factors

* Chinese factory output slowed in October

NEW YORK, Nov 14 (Reuters) - U.S. Treasury yields fell on Thursday as investors reassessed the likelihood that the United States and China are close to reaching a deal to de-escalate their trade war and as bonds retraced last weeks selloff, which was exaggerated by technical factors. On Tuesday, U.S. President Donald Trump said the two countries were close to a deal but that if one is not made, Washington will raise tariffs on Chinese imports. On Wednesday, the Wall Street Journal reported that the trade talks have hit a snag over farm purchases. There is a more realistic assessment of the current stance of trade negotiations, said Jon Hill, an interest rate strategist at BMO Capital Markets in New York. The trade war has been blamed for slowing global growth, and disappointing data from China on Thursday added to growth fears. China's factory output growth slowed significantly more than expected in October, as weakness in global and domestic demand weighed on broad segments of the world's second-largest economy.

Bonds also gained as the extent of the selloff last week was viewed as exaggerated due to the size and speed of the move.

Benchmark 10-year note yields rose to 1.973%

last Thursday, which was the highest since Aug. 1, and have climbed from 1.670% on Nov. 1. A lot of the reason for the rather large selloff we saw was rather technical in nature, basically a couple of supports were breached in quick succession, said Hill. Its a little bit unsustainable unless you have fundamental information to go with. On Thursday, the yields fell to 1.831%, from 1.869% late Wednesday. U.S. data on Thursday showed that U.S. producer prices increased by the most in six months in October, lifted by gains in the costs of goods and services. Retail sales data on Friday is the next major economic focus.

(Editing by David Gregorio)