TREASURIES-Bond prices jump on weak U.S. data, Cyprus jitters

* Surprise March retail sales drop dims U.S. growth view * Cyprus seeking more aid fuels safety bid for bonds * Bets on Japanese demand persist despite mediocre auctions * Benchmark Treasuries set to pare most of week's loss By Richard Leong NEW YORK, April 12 (Reuters) - The U.S. government debt market rallied on Friday as data showing a surprise decline in retail sales in March darkened investors' view on the U.S. economy, which might still need generous support from the Federal Reserve. News (NasdaqGS: NWS - news) about cash-strapped Cyprus asking for more help because of its deteriorating economy also stoked safe-haven bids for bonds, pushing up prices on benchmark 10-year Treasuries and erasing much of the losses from earlier this week. "The recent data have turned out weaker than expected. This was reinforced by today's retail sales figures," said Jeff Given, portfolio manager at Manulife Asset Management in Boston. "Treasuries will remain fairly well bid with also what's going on in Japan." Persistent (BSE: PERSISTENSL.BO - news) bets stemming from the Bank of Japan's $1.4 trillion asset purchase program to stimulate the country's economy have underpinned support for U.S. bonds. Traders have speculated that Japanese insurers and pension funds will pour money into Treasuries and higher-yielding overseas assets on expectations that the BoJ's aggressive campaign will depress yields at home. The BoJ's program is even more aggressive by some measures than the U.S. Federal Reserve's current bond purchase scheme, analysts said. There has been no strong sign, however, that Japanese demand for Treasuries has jumped since the BoJ unveiled its stimulus plan last week. Data on this week's three U.S. government debt auctions, worth a combined $66 billion, did not suggest any immediate pickup in foreign bids for U.S. bonds. "Treasuries will be the beneficiary, but I don't see this moving that fast," said Anthony Valeri, fixed income strategist at LPL Financial (NasdaqGS: LPLA - news) in San Diego. On the open market, the benchmark 10-year note last traded up 20/32 in price at 102-16/32 to yield 1.723 percent, down 6.8 basis points from late on Thursday. The 10-year yield was on track to end up about 1 basis point on the week after falling the previous four weeks from an 11-month high set in early March. The 30-year bond last traded up 1-17/32 in price at 104-2/32 to yield 2.920 percent, down 7.7 basis points on the day but up 4.3 basis points from a week earlier. U.S. Treasuries fared better than Japanese government debt. The yield premium on 10-year Treasuries over their Japanese counterparts shrank to 1.10 percentage points on Friday, down from 1.24 points on Thursday and the tightest level since late January, according to Reuters data. MORE WORRISOME U.S. DATA The decline in U.S. retail sales in March, which fell 0.4 percent, which fell 0.4 percent, was the latest evidence that U.S. economic growth slowed in the latter part of the first quarter after a robust start. The drop in retail sales stirred worries about consumer spending, a key driver of the U.S. economy. Disappointing data, including an abysmal March payroll report a week ago, led economists to mark down their forecasts for first-quarter gross domestic product to the high-2.0 percent to low-3.0 percent area, from an earlier mid-to-high 3.0 percent range. Many economists forecast second-quarter GDP, based the latest data, might slow to roughly 1 percent. Dour prospects for the American economy would likely mean that Fed Chairman Ben Bernanke steers the U.S. central bank to stay the course on its near-zero interest rate policy and purchases of bonds, currently at $85 billion a month. "For bonds, it's a win if Bernanke and the Fed remain all-in," said Robbert Van Batenburg, director of market strategy at Newedge USA LLC in New York. The president of the Federal Reserve Bank of Boston, Eric Rosengren, on Friday told CNBC television: "This is not the time to take away the accommodation." While traders' worries about the U.S. economy intensified, they cast a wary eye on Europe as the region struggled to contain its festering debt crisis. Cypriot President Nicos Anastasiades told reporters in Nicosia on Friday that he would send a letter to European Commission President Jose Manuel Barroso and European Council President Herman Van Rompuy seeking extra assistance for Cyprus, given the bad economic situation of the island. Euro zone finance ministers said, however, there were no plans or requests beyond the 10 billion euros of loans already on the table.