TREASURIES-Prices fall after unexpected drop in jobless rate

(Adds comment, updates prices)

By Ellen Freilich

NEW YORK, Oct 5 (Reuters) - U.S. Treasuries prices fell on Friday after a surprise drop in the U.S. jobless rate in September damped bids for safe-haven U.S. debt and reminded investors that the Federal Reserve's monetary policy could eventually become less accommodative.

The U.S. Labor Department said the unemployment rate fell to 7.8 percent in September from 8.1 percent in August, compared with economists' expectations for the jobless rate to rise to 8.2 percent. Meanwhile, 114,000 jobs were added to nonfarm payrolls in September; August job growth was revised up to 142,000 from 96,000, while July job growth was revised up to 181,000 from 141,000.

"Treasuries sank after the jobs report," said Cary Leahey, economist and senior advisor to Decision Economics in New York. "Though September job growth was close to expectations, several facets of the report, particularly the large drop in the unemployment rate to 7.8 percent, suggested that the Fed was closer to the exit window," he said, referring to the Federal Reserve's program of unconventional monetary easing.

"A 7.8 percent unemployment rate is much closer to the 7 percent implicit Fed exit monitoring target than 8.1 percent," Leahey said.

The benchmark 10-year Treasury note

, which was down 4/32 in price just before the report was released, extended its loss to 16/32, pushing its yield up to 1.73 percent from 1.67 percent late on Thursday.

The 30-year bond

, down 8/32 before the report, fell nearly two points to 96, its yield rising to 2.95 percent from 2.89 percent late on Thursday.

But while the Treasury market retreated following the jobless data, the drop was far from decisive.

Alan Ruskin, head of G10 FX strategy at Deutsche Bank in New York, said the report did nothing to "dent a quantitative easing-fueled moderate 'risk on' bias," and would not change investors' views on the nature of monetary policy the Federal Reserve would likely conduct next year.

"The data does not suggest things on the ground have changed radically ... (and) will have little impact on entrenched expectations of a very extended period of quantitative easing, at least through 2013," he said.

"A string of much better employment reports would be needed to change a view that the Fed will be expanding its balance sheet by close to $1 trillion over the next year," Ruskin said.

Traders said some of the downward pressure on 10- and 30-year Treasuries occurred in anticipation of supply next week when the Treasury will auction 10- and 30-year bonds.

"A concession is starting to be built in ahead of the longer end supply next Wednesday and Thursday," said Cantor Fitzgerald Treasury strategist Justin Lederer.

The difference between 10- and 30-year yields has widened back to slightly more than 122 basis points, he noted.

"Overall, as risk assets trade better and supply looms, Treasuries will give back some of their recent gains. But I do not expect any major sell-off," Lederer said.

(Editing by Bernadette Baum)

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((-------MARKET SNAPSHOT AT 9:44 a.m. EDT (1344 GMT)-------

Change vs Current Nyk yield Three-month bills 0.100 (-0.005) 0.101 Six-month bills 0.145 (-01/32) 0.147 Two-year note 100-31/32 (-01/32) 0.258 Five-year note 99-26/32 (-04/32) 0.662 10-year note 99-02/32 (-16/32) 1.727 30-year bond

96-00/32 (-1-29/32) 2.950 ))